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U.S. Supreme Court Says Federal Arbitration Act Does Not Apply to Independent Contractor Drivers

    Client Alerts
  • January 22, 2019

In a series of decisions over recent years, the U.S. Supreme Court has repeatedly upheld the use of mandatory arbitration agreements in employment disputes over the objections of employees who claimed various legal reasons for not applying the agreements’ terms. These decisions are based on the Federal Arbitration Act, a 1925 law that the Supreme Court interprets as favoring arbitration of most disputes. Last Tuesday, however, the Supreme Court interpreted an FAA provision to exclude enforcement of a mandatory arbitration agreement signed by an interstate truck driver.

In New Prime Inc. v. Oliveira, the plaintiff was an independent contractor driver who filed a class action lawsuit against the defendant, alleging that he and other similarly situated drivers were misclassified employees entitled to minimum wage payment. The defendant sought to compel arbitration, citing a mandatory arbitration agreement signed by the plaintiff. Both the trial court and the First Circuit refused to enforce the arbitration agreement, citing a FAA provision that excludes from its terms contracts of employment in the transportation industry.

The defendant contended that because the plaintiff was a contractor and not an employee, the FAA exclusion did not apply to him. The Supreme Court unanimously disagreed, affirming the lower court decision. The court read the FAA broadly, noting that in 1925, the term “employment” referred to the work to be performed and not only an employment relationship. The justices also said that the judiciary and not the arbitrator has authority to interpret the applicability of the FAA to these agreements.

This decision does not invalidate arbitration agreements used by transportation companies. Even if the FAA cannot be used to justify enforcement, depending on where the work is performed, state law may find the arbitration agreement to be enforceable. However, in states that have demonstrated their hostility to use of mandatory arbitration agreements in employment and related work arrangements, the FAA will not pre-empt a decision finding such agreements unenforceable when used with transportation workers.