Mandatory Arbitration in the Transportation Industry Takes a Blow from The United States Supreme Court

New Prime, Inc. v. Oliveira

On January 15, 2019, the United States Supreme Court ruled unanimously in favor of Dominic Oliveira, a purported Independent Contracted driver (“owner-operator”) for New Prime, Inc., an interstate trucking company, holding that Oliveira’s dispute need not be compelled to arbitration.

The case hinged largely on the Federal Arbitration Act (FAA), a 1926 law that requires courts to move cases involving interstate commerce disputes to arbitration.  However, the FAA includes an exception in Section 1 for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Oliveira filed a class action lawsuit, alleging that New Prime deprived its driver of legal wages.  New Prime sought to resolve the dispute via arbitration pursuant to Oliveira’s owner-operator agreement, which included a mandatory arbitration provision.

The first issue that the Court considered was whether a court or an arbitrator should decide whether the Section 1 exception applied.  In a unanimous opinion written by Justice Neil Gorsuch, the Court held that “a court should decide for itself whether Section 1’s ‘contracts of employment’ exclusion applies before ordering arbitration. After all, to invoke its statutory powers . . . to stay litigation and compel arbitration according to a contract’s terms, a court must first know whether the contract itself falls within or beyond the boundaries of §§1 and 2 [of the FAA].”

The second issue that the Court considered was whether arbitration should be compelled. It was uncontested that Oliveira qualified as a “worker engaged in interstate commerce.” The question, however, was whether Oliveira, a purported independent contractor who had signed an owner-operator agreement, had a “contract of employment” with New Prime.  The Court noted that “contract of employment” should be given a broad interpretation and “[w]hen Congress enacted the [FAA] in 1925, the term ‘contracts of employment’ referred to agreements to perform work.”  Thus, the Court concluded that the §1 exception “easily embraces independent contractors,” and therefore, held that it was not appropriate to compel arbitration.

Although New Prime made clear that the Section 1 exception applies to both independent contractors and employees, the Court’s opinion only addressed those who work in foreign or interstate commerce, so it is unclear how will it be applied to intrastate drivers.

Ultimately, the New Prime decision may force transportation companies to rely on state arbitration law, which lacks uniformity state-to-state.  Even so, a company should consider whether arbitration is a better option for it, as opposed to litigation, as this can differ from company-to-company, based upon a multitude of factors.  See Ruth Binger’s article, titled “Factors Employers Should Consider When Determining Whether to Incorporate an Employee Arbitration Program.”  While Ruth’s article focuses on employment contracts, most of the same factors, including the size of the company, the company’s budget, and the company’s history of claims, should be taken into consideration when deciding whether or not to include an arbitration provision in an owner-operator agreement.

Click here to read the full New Prime opinion.

Posted by Attorney Katherine M. Flett. Flett is a member of the litigation team focusing on assisting clients with matters relating to business, civil and commercial litigation. 

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