Wyatt Employment Law Report

US Supreme Court Gives Rare Victory for Arbitration Opponents in a Narrow Case for Transportation Workers

By Sharon Gold

Over the past few decades, the US Supreme Court has become a very arbitration-friendly Court.  Indeed, in the last decade, the Court has upheld arbitration in numerous decisions.  This week, in a rare victory for arbitration opponents, the Supreme Court in New Prime Inc. v. Oliveira unanimously rejected arbitration for truck drivers who were classified as independent contractors under the narrow transportation exception.  At issue was an exception to the enforceability of arbitration clauses for “contracts of employment” of workers engaged as seamen, railroad workers or those engaged in foreign or interstate commerce under the Federal Arbitration Act.  Both parties in the case agreed that truck driver employees fell within the exception.  The questions at issue were: 1) Should the Court decide the initial issue of enforceability of arbitration or should an arbitrator; and 2) Whether the transportation exclusion applied to independent contractors rather than just employees.

The Court initially held that the decision of whether the exclusion applied was one for the Court to decide because it dealt with the statutory authority of the Court.  In another case decided by the Court this term, the Court held that the interpretation of an arbitration agreement, on the other hand, would be subject to review by an arbitrator who would then decide whether arbitration was proper.  Here, because the exclusion concerned the Court’s statutory authority to either compel or not compel arbitration over certain contracts of employment, that initial decision of enforceability was properly decided by the Court.

After deciding the threshold issue, the Court held that the transportation exclusion applies to truck drivers who are classified as independent contractors just as it does to employees.  The Court held that the term “contracts of employment” should be construed to mean what those terms meant at the time the FAA was enacted in 1925.  At that time, most people would understand  the transportation exclusion to apply to all truck drivers regardless of their classification.  In the twenties, “employment” was not a term of art, but rather a word that corresponded to “work.”  The Court held that the company tried to shift the debate from “contract of employment” to the term “employee,” however that term was not at issue.

Employers should not fear that the Court is becoming less friendly to arbitration agreements with this decision because it involves a very narrow exception to the FAA.  It does not signal an end to the Court’s embrace of the liberal federal policy favoring arbitration agreements.

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