Labor & Employment Law Daily SCOTUS: Independent contractor-driver’s contract was ‘contract of employment’ exempt from FAA; trucking company can’t compel arbitration
Tuesday, January 15, 2019

SCOTUS: Independent contractor-driver’s contract was ‘contract of employment’ exempt from FAA; trucking company can’t compel arbitration

By Ronald Miller, J.D.

An “operating agreement” that classified a truck driver as an independent contractor and contained a mandatory arbitration provision fell within the exception in § 1 of the Federal Arbitration Act, so that New Prime, Inc., the trucking company with which he contracted, could not compel arbitration of the driver’s wage claims, ruled a unanimous U.S. Supreme Court in an 8-0 decision. In so ruling, the High Court agreed with the First Circuit that, despite a contractual provision delegating arbitrability of the dispute to an arbitrator, as a transportation worker the driver could not be compelled to arbitrate. Further, the Court found that “contracts of employment” did not refer only to contracts that establish an employer-employee relationship and not to contracts with independent contractors. Justice Ginsburg filed a separate concurring opinion. Justice Kavanaugh took no part in the decision (New Prime, Inc. v. Oliveira, January 15, 2019, Gorsuch, N.).

Class action. The driver filed a class action alleging that the trucking company denied its drivers lawful wages. He worked under an operating agreement that classified him an independent contractor and contained a mandatory arbitration provision. Consequently, the trucking company asked the court to invoke its statutory authority under the FAA to compel arbitration. However, the driver countered that the court lacked authority because § 1 of the Act excepts from coverage disputes involving “contracts of employment” of certain transportation workers.

Transportation worker exception in FAA. Section 1 of the FAA states that “nothing herein” may be used to compel arbitration of certain transportation workers. That qualification has sparked two questions: When a contract delegates questions of arbitrability to an arbitrator, must a court leave disputes over the application of § 1’s exception for the arbitrator to resolve? And does the terms “contracts of employment” refer only to contracts between employers and employees, or does it also reach contracts with independent contractors?

Here, the trucking company stressed that the parties’ contract contained a “delegation clause,” giving the arbitrator authority to decide threshold questions of arbitrability, and that the “severability principle” required that both sides take all disputes to arbitration. It insisted that any question regarding§ 1’s applicability belonged to the arbitrator.

FAA interpretation, step by step. However, the Court observed that a delegation clause is merely a specialized type of arbitration agreement and is enforceable under §§ 3 and 4 of the FAA only if it appears in a contract consistent with § 2 that does not trigger § 1’s exception. And the Act’s severability principle applies only if the parties’ arbitration agreement appears in a contract that falls with the field §§ 1 and 2 describe. Moreover, the Court observed that it was understood in 1925 that a “contract of employment” did not necessarily imply the existence of an employer-employee relationship. Accordingly, the First Circuit was correct that it lacked jurisdiction under the Act to order arbitration.

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