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Article Summary

The U.S. Supreme Court's 8-0 decision in New Prime Inc. v. Oliveira made for a pleasant breather after years of pro-employer interpretations of the Federal Arbitration Act. The scope of this newly confirmed exception to the FAA remains to be seen — but it's good for transportation workers, at a bare minimum.

This expert analysis by TELG managing principal R. Scott Oswald was published by Law360 on January 15, 2019.

Reprinted from:

A Small Crack In High Court’s Pro-Employer FAA Absolutism

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By R. Scott Oswald

Lately it’s become reasonable to ask: Is there any arbitration provision — however lopsided and unfair — that the U.S. Supreme Court won’t deem enforceable under the Federal Arbitration Act (FAA), a 90-year-old statute that modern corporations have wielded to push their disputes out of public courts and onto the secret, tilted field of arbitration?

Thanks to trucker Dominic Oliveira, the answer is finally yes: The FAA retains at least one court-approved carveout.

In a unanimous decision today in New Prime Inc. v. Oliveira, the Supreme Court agreed with Mr. Oliveira that the FAA doesn’t apply to provisions in agreements with workers “engaged in foreign or interstate commerce,” regardless of whether such workers are independent contractors.

The court didn’t sketch the outer limits of this carveout, although the 8-0 opinion by Justice Neil Gorsuch — whose previous FAA opinion, not eight months ago, was profoundly anti-labor — implied that only transportation workers would qualify for an exception.

(Justice Brett Kavanaugh didn’t take part in Oliveira, which was argued before he took his seat on the court.)

Still, a win is a win. The court’s recent FAA jurisprudence may have revived the Gilded Age fiction that employment agreements are voluntary contracts — when, in truth, most workers have no option but to accept their terms — but Oliveira at least proves that the justices’ historical predilections may cut both ways.

Here, a worker-friendly outcome was reached by entering the minds of 1920s legislators.

Background

Mr. Oliveira’s contract with New Prime, an interstate trucking company, purported to classify him as an independent contractor — that is, not an employee in the modern legal sense — and specified that disputes would be settled via arbitration.

Mr. Oliveira nonetheless sued New Prime in federal court for failure to pay him and other drivers, who he claimed actually were employees, properly under the Fair Labor Standards Act (FLSA). New Prime tried to kick the case to arbitration under the FAA via two arguments:

  • First, that an arbitrator must decide whether the FAA covers Mr. Oliveira’s agreement with New Prime; and
  • Second, even if a court winds up deciding the question, that the FAA certainly does cover Mr. Oliveira’s agreement.

New Prime lost badly in the lower courts, and fared no better at the highest level.

It’s worth noting that the gateway issue in Oliveira was qualitatively different from that in Henry Schein, Inc. v. Archer and White Sales, Inc., another FAA case that the court decided just last week. In Henry Schein, a 9-0 opinion from Justice Kavanaugh held that courts must enforce a valid delegation to an arbitrator, even if the dispute is over arbitrability — and even if the outcome seems entirely predetermined.

In Oliveira, by contrast, the gateway matter was whether the FAA applies at all. To rely on the FAA to enforce the delegation of such a question, wrote Justice Gorsuch, is to put the cart before the horse:

The parties’ private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the [FAA] authorizes a court to stay litigation and send the parties to an arbitral forum.

In short, a court can’t apply the FAA to a contract before deciding whether the FAA governs the contract — self-evident, perhaps, but worth three pages of the Oliveira opinion.

The Meatier Matter

Justice Gorsuch then moved to the substantive question: Does the FAA govern the agreement between Mr. Oliveira and New Prime?

The FAA includes a carveout for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” For years, transportation companies such as New Prime have tried to avoid this provision by framing their workers as independent contractors — who, because they are not “employees” in today’s legal sense, supposedly cannot enter a “contract of employment.”

The trouble with this distinction, said Justice Gorsuch, who cultivates a reputation as a historical stickler, is that it wasn’t operative when the FAA was written:

To many lawyerly ears today, the term “contracts of employment” might call to mind only agreements between employers and employees …. But this modern intuition isn’t easily squared with evidence of the term’s meaning at the time of the Act’s adoption in 1925. At that time, a “contract of employment” usually meant nothing more than an agreement to perform work. As a result, most people then would have understood [the FAA] to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.

Any 1920s legal authorities who used the term exclusively for so-called master/servant relationships, he continued, “appear to represent at most the vanguard, not the main body, of contemporaneous usage.”

Mr. Oliveira therefore falls directly into the FAA’s carveout, along with all similar independent contractors, and can’t be compelled into arbitration under that law. Barring another development upon remand, he would seem free to pursue the merits of his FLSA claim.

What It All Means

Today’s decision is helpful to truckers and other independent transportation workers, at a minimum: With admirably clear language, Oliveira removes the prospect of forced arbitration clauses being rammed down their throats under the FAA. Their employment agreements remain subject to regular contract law, of course, but that’s friendlier ground in many states.

How about that phrase, “any other class of workers engaged in foreign or interstate commerce”? Could this FAA carveout, newly confirmed to be rock-solid, reach past traditional freight workers? Could it reach, for instance, warehouse workers for Amazon? Uber drivers?

Well, perhaps not, given Justice Gorsuch’s reliance on divining the intent of lawmakers from a previous century. But the carveout certainly includes truckers, who already are fairly different from “seamen [and] railroad employees” — and “any other class” is pretty broad. As Justice Ruth Bader Ginsburg noted in her brief concurrence in Oliveira, quoting Justice Stephen Breyer in West v. Gibson, itself an employment case:

Words in statutes can enlarge or contract their scope as other changes, in law or in the world, require their application to new instances.

In Oliveira, the justices expressly declined to apply that principle to “contracts of employment” — and rightly so, since it would have changed the law’s meaning.

Now that we see a small crack in the court’s pro-employer FAA absolutism, however, perhaps some further testing is in order.

—–

R. Scott Oswald is managing principal of The Employment Law Group, P.C.

(Note: This version has been edited slightly from the version published by Law360.)

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