Article Summary

In oral arguments at the U.S. Supreme Court on Wednesday, even the conservative justices seemed inclined to side against management, pointing toward that rarest of outcomes: A scenario in which the all-powerful Federal Arbitration Act can't deprive workers of their day in court.

This expert analysis by TELG managing principal R. Scott Oswald was published by Law360 on October 3, 2018.

Originally published in:

Oliveira Arguments Portend a Small Victory Against FAA — But Hey, a Victory

By R. Scott Oswald

For years now, employers have been relying on arbitration agreements to herd their workers toward ever-weaker legal remedies — and the U.S. Supreme Court has blessed each constriction along this cattle chute, all the way to last term’s hobbling of collective action in Epic Systems Corp. v. Lewis.

The justification in each case: The Federal Arbitration Act (FAA), a 1925 statute that corporations have wielded with disturbing vigor in the 21st Century, pushing many workplace disputes into biased forums that convene behind closed doors.

Thank heaven, then, for the small favor of New Prime, Inc. v. Oliveira, an arbitration case for which the court heard arguments today. While limited in scope, the lawsuit seems likely to offer a rare instance in which the FAA won’t prevent a worker from grappling with his employer in a public court.

Two factors make this outcome likely.

First, even the more conservative justices seemed open today to the idea that the FAA’s historical carve-out for “contracts of employment of … workers engaged in foreign or interstate commerce” applies to individual independent contractors, not just conventional employees.

And second, with only eight justices hearing Oliveira, even a worst-case 4-4 split along ideological lines would preserve the lower court’s worker-friendly opinion. (This assumes that the high court doesn’t re-hear the case after a replacement for retired Justice Anthony Kennedy is confirmed — which seems a safe bet, given the low-energy vibe of today’s arguments.)

Background of the Case

Dominic Oliveira is a trucker whose contract with New Prime, an interstate trucking company, purported to classify him as an independent contractor — not an employee — and specified that legal disputes would be settled via arbitration.

Regardless, Mr. Oliveira sued New Prime in federal court for failure to pay him and other drivers properly under the Fair Labor Standards Act (FLSA), arguing that he hadn’t truly been an independent contractor for the purposes of that statute, which applies only to “employees.”

New Prime tried to push the matter into arbitration, asking the court to enforce its agreement with Mr. Oliveira under the FAA — something the court declined to do, saying that the FAA’s historical carve-out might apply, depending on whether Mr. Oliveira was an independent contractor, a threshold determination that the court could make (and that wouldn’t be dispositive as to the FLSA).

New Prime escalated to the U.S. Court of Appeals for the First Circuit, claiming that even the threshold matter should be arbitrated, and was slapped with a much worse result: The FAA’s carve-out does apply to Mr. Oliveira, the appellate court ruled, because “contracts of employment” weren’t limited to common-law employees when that statute was passed — so New Prime couldn’t rely on the FAA regardless of Mr. Oliveira’s classification. In this framing, the threshold issue switched to whether the court even had the right to decide the applicability of the FAA, which it said it did.

Worth noting: Even if the First Circuit’s ruling stands after the Supreme Court is done, nudging the FAA out of the picture, courts still might enforce arbitration agreements like Mr. Oliveira’s under regular contract law. And, of course, Mr. Oliveira could lose his case on the merits even in a courtroom.

Nonetheless, given almost two decades of relentless application of the FAA in favor of employers, even a small victory for workers would be refreshing here.

A Cold Bench at Arguments

Today’s arguments were notable mainly for the justices’ lack of spirited engagement: Clashing readings of a clause in a nearly 100-year-old statute didn’t inspire much passion, and the attorneys at the podium — especially Jennifer Bennett of Public Justice, P.C. for Mr. Oliveira — spoke unchallenged for long stretches.

Representing New Prime, Theodore J. Boutrous Jr. of Gibson, Dunn & Crutcher LLP faced strong skepticism across the spectrum when he claimed that the inclusion of independent contractors in “contracts of employment,” as that phrase was understood in 1925, should be rejected by the court as “a new, creative interpretation.”

Challenged first by Justice Sonia Sotomayor, who noted that the FAA clause relied the word “workers” — “a much broader term” than “employees” — and by Justice Ruth Bader Ginsburg, Mr. Boutrous also drew fire from the more conservative Chief Justice John Roberts, who seemed to adopt Mr. Oliveira’s position wholesale.

“Simply because someone would be considered or not considered [a conventional] employee doesn’t necessarily answer the question of whether it’s a contract of employment,” said the chief justice. “[T]he question is not employee/employer. It’s employment.”

Justice Neil Gorsuch, too, showed sympathy for Mr. Oliveira’s position — perhaps surprisingly so, as he had written the controversial pro-management opinion in Epic Systems in May, which Justice Ginsburg reviled from the bench as “egregiously wrong.”

“[T]here’s a lot of historical evidence at the time of the statute in question that ‘contract of employment’ may have swept more broadly,” said Justice Gorsuch, calling the support for such an interpretation a “fact” and noting that even New Prime itself, on its Web site, talks about “employing” independent contractors.

Smooth Ride for the Trucker

Arguing for Mr. Oliveira, Ms. Bennett was able to step through her talking points with fewer interruptions. Justices Samuel Alito and Elena Kagan bandied some hypothetical distinctions with her, testing for the edge of the phrase “workers” — but the exchanges weren’t confrontational, and seemed more like brainstorming for a favorable opinion.

Crucially, no one pushed the idea that the FAA’s applicability must be decided via arbitration rather than by the justices. Mr. Boutrous had been very shy on this matter, to the stated surprise of Chief Justice Roberts, and Ms. Bennett appeared simply to assume her victory on the question.

As the justices scrambled for things to talk about, Justice Gorsuch even asked Ms. Bennett for advice on writing an eventual opinion. When future courts decide whether the historical carve-out applies to a particular case, he asked — itself a striking assumption about the outcome — how should they be advised to avoid “five years of discovery and all the glories that entails?”

When Ms. Bennett suggested that such proceedings should be both rare and spare, Justice Gorsuch seemed happy with what he called “common ground.”

Needless to say, nothing in today’s arguments suggested a defanging of the FAA, which remains a potent tool for employers. But at least we now have evidence that the statute is likely subject to some limits — even if they arise in the language of the 1920s.


R. Scott Oswald is managing principal of The Employment Law Group, P.C., which is based in Washington, D.C.

(Note: This version has been edited slightly from the version published by Law360, and carries a different headline.)