Supreme Court Limits Use Of Arbitration In Transportation Industry

Court’s Ruling Is Disappointing Blow For Transportation Companies

On Tuesday, January 15, 2019, the Supreme Court unanimously decided a significant case which will have tremendous impact on transportation companies that attempt to utilize arbitration agreements with their independent contractors. In most instances, trucking companies that use owner-operator independent contractors will not be able to rely on arbitration clauses as an alternative to civil litigation.

For the first time in a long series of more than a dozen Supreme Court cases, going back more than a decade, Justice Gorsuch’s opinion rejected a claim for arbitration.

New Prime Inc. v. Oliveira, Supreme Court No. 17-340, 1/15/19

Mr. Oliveira worked under a written operating agreement that required him, as an independent contractor, to have all potential disputes be part of a mandatory arbitration provision. When Mr. Oliveira filed a class-action suit for New Prime’s failure to pay lawful wages, New Prime sought to have the court invoke its statutory authority under the Federal Arbitration Act (FAA) to compel arbitration.

Mr. Oliveira contended that the court lacked authority because Section 1 of the FAA states a clear exception in the coverage of disputes involving the “contract of employment” of certain transportation workers. However, New Prime maintained that any question regarding Section 1 of the FAA’s applicability belonged to the arbitrator alone to be resolved and that “contracts of employment” referred only to contracts that establish an employer-employee relationship and not to contracts with independent contractors.

Determination of the Court

1. The Court’s should be the forum to determine whether Section 1 of the FAA’s exclusion applies before ordering arbitration. Justice Gorsuch wrote, “The parties’ private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.” The FAA statutory provisions limit the scope of the Court’s Section 3 and Section 4 power to stay litigation and compel arbitration.

Section 2 of the FAA states that the Act applies only when the agreement sets forth a “written provision in any maritime transaction or a contract evidencing a transaction involving commerce.” Section 1 of the FAA defines Section 2 terms, warning that “nothing” in the Act “shall apply” to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.

2. Because the FAA’s term “contract of employment” refers to any agreement to perform work, the Court ruled that the parties’ agreement falls with Section 1’s exception. The Court stated, “It’s a fundamental canon of statutory construction that words generally should be interpreted as taking their ordinary…meaning…at the time Congress enacted the statute.”

At the time of the Act’s adoption in 1925, the phrase “contract of employment” was not a term of art, the dictionaries tended to treat “employment”, more or less, as a synonym for “work.” Evidence that Congress used the term “contracts of employment” broadly can be found in its choice of the neighboring term “workers”, a term that embraces independent contractors.

As a result, Oliveira, along with other truckers and transportation contractors, qualify for the FAA’s exemption and his class-action lawsuit may now proceed in Court.

Trucking Industry’s Reaction and Takeaway:

1. The Supreme Court’s decision will make dispute resolution in the trucking industry costlier than in the past, and costlier than it is in other industries. This, in turn, will result in unnecessary costs being passed to the supply chain.
2. The Supreme Court’s ruling will make it harder for motor carriers and independent owner-operators to rely on agreements to resolve their disputes through arbitration under the FAA.
3. Many smaller monetary disputes that commonly arise between owner-operators and motor carriers will not be resolved due to the cost of litigation that is prohibitive to individuals. The future will answer how prone plaintiff’s attorneys will be to handle such small monetary claims.
4. Motor carriers may still be able to use state laws for the enforcement of arbitration provisions apart from the FAA. State laws vary widely and do not contain such broad exception for transportation workers that is covered in the FAA. It is recommended that the motor carrier consult with their attorney to closely scrutinize applicable state law.
5. The Court left open for future litigation whether an owner-operator who did not personally perform services or who operated multiple trucks would be subject to the exemption. Although, this issue was probed by the justices at oral argument, the Court did not address these issues.
6. The Court did not render any assistance as to who constitutes a transportation worker within the meaning of the FAA, which is both industry and fact specific under the statute. This case does address the impact on independent owner-operator truck drivers.
7. The Supreme Court did not address or interpret the meaning of “engaged in foreign or interstate commerce”. The question remains as to whether drivers who do not cross state lines, along with other workers who are engaged in interstate activities, will be impacted by this Supreme Court decision.