Must Independent Truck Drivers Arbitrate Workplace Claims?
By Lisa Nagele-Piazza, J.D., SHRM-SCPOctober 5, 2018
The U.S. Supreme Court heard oral arguments Oct. 3 in a dispute about whether businesses can enforce arbitration agreements made with long-haul truck drivers who are classified as independent contractors.
In New Prime Inc. v. Oliveira, U.S., No. 17-340, the plaintiff was an independent contractor who signed an agreement to arbitrate workplace-related claims. He brought a class-action complaint in court against New Prime, an interstate trucking company, asserting that he and other independent contractors were misclassified and due certain employment benefits, such as minimum wage payments.
The big question in this case is whether the Federal Arbitration Act (FAA) applies to independent contractors in the trucking industry or if they fall under an exclusion for employees, said Grant Alexander, an attorney with Alston & Bird in Los Angeles. He noted that the high court has a history of encouraging arbitration, in part to lessen the burden on courts with overloaded dockets.
The Society for Human Resource Management (SHRM) supports alternatives to litigation, such as arbitration and mediation, to resolve workplace claims. SHRM joined a friend of the court brief in this case, which noted that many SHRM members regularly rely on arbitration agreements in their contractual relationships.
"It makes sense to resolve disputes with independent contractors using arbitration so that they can be resolved promptly and efficiently while avoiding the costs associated with traditional litigation for all parties," said Nancy Hammer, SHRM vice president, regulatory and judicial affairs counsel.
Are Contractors Covered?
The FAA was enacted in 1925 to give validity to arbitration as an enforceable alternative to litigation. The act was meant to curb judges' potential hostility toward private dispute resolution, noted Richard Rosenblatt, an attorney with Morgan Lewis in Princeton, N.J.
In recent years, courts have consistently upheld arbitration agreements that apply to employment relationships, and the Supreme Court has maintained a "liberal federal policy favoring arbitration agreements" in its prior rulings. Most recently, the high court ruled that class-action waivers in arbitration agreements are enforceable in the employment context.
However, the FAA excludes "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Therefore, transportation employees involved in interstate commerce, such as long-haul truck drivers, cannot be forced to arbitrate employment claims.
In New Prime, the trucking company argued that the drivers are not employees, and arbitration agreements can be enforced against independent contractors. On the other side, the plaintiff argued that "contracts of employment" have historically applied to employees and independent contractors. The 1st U.S. Circuit Court of Appeals sided with the driver and held that independent contractor agreements are contracts of employment and are exempt from the FAA.
The decision was surprising because it had been widely accepted for decades that a "contract of employment" did not include an independent contractor agreement, Rosenblatt said.
The 1st Circuit's ruling was "contrary to the plain meaning of the statute and its structure, purpose, history and context," said Theodore Boutrous Jr., an attorney with Gibson, Dunn & Crutcher in Los Angeles, who represented New Prime during oral argument.
The Supreme Court has said "over and over again" that if Congress uses words like "employment" or "employee" or "employer" in a statute without further definition, it intends to cover a traditional employment relationship, he argued.
Justice Sonia Sotomayor, however, pointed to the part of the FAA that addresses "workers" who are engaged in interstate commerce. "Shouldn't that inform what it meant by contract of employment?" she asked. "It used a much broader term."
Statutes are interpreted according to their ordinary meaning at the time they were passed, argued Jennifer Bennett, an attorney with Public Justice in Oakland, Calif., who represented the driver at oral argument.
"There's overwhelming evidence that in 1925, when the Federal Arbitration Act was passed, the words 'contract of employment' were a general category for agreements to perform work," she said. "They included the agreements of common-law servants, as well as independent contractors."
Should an Arbitrator Decide?
The arbitration agreement in this case included a "delegation clause" stating that an arbitrator must decide the threshold question of whether an issue should be heard by an arbitrator or a court. But the justices raised concerns about sending this issue to an arbitrator to decide.
"It's one thing to say, for example, if you have an agreement, we'll arbitrate all disputes on the plant floor," said Chief Justice John Roberts Jr. If the company extends the campus, the question is whether the arbitration agreement applies to any additions. "That's sort of within the four corners of the arbitration agreement," he said. But the question here is, "Does the act apply at all?" That question "seems to be on a different order of magnitude," he said.
Hard to Predict
The justices actively questioned each side, and it's always hard to know from oral argument how they will decide, noted Andrew Pincus, an attorney with Mayer Brown in Washington, D.C., who filed the friend of the court brief on SHRM's behalf.
David Pryzbylski, partner with Barnes & Thornburg in Indianapolis, observed that Democrat- and Republican-appointed justices posed many questions to New Prime's counsel about whether Congress intended "contracts of employment" to cover independent contractor agreements. In contrast, the driver's counsel received comparatively fewer questions on this issue, he added.
The justices are left to divine what Congress was thinking in 1925, with no particularly clear indicators, Rosenblatt said. "This decision is extremely important to any trucking or other transportation company engaged in commerce across state lines because of the FAA's wide mandate to enforce arbitration agreements as written."