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Transportation Workers Exempt from Mandatory Arbitration

Earlier this year, the United States Supreme Court decided New Prime Inc. v. Oliveira. The Supreme Court ruled that transportation workers engaged in interstate commerce—including those labeled as independent contractors—are exempt from the Federal Arbitration Act (FAA) and thus cannot be compelled to undergo mandatory arbitration. Justice Gorsuch, writing for a unanimous Court, held that plaintiff Dominic Oliveira, a trucker driving for defendant New Prime, had the right to litigate his wage and hour claims in court, rather than have them decided by an arbitrator.

Mr. Oliveira worked as an independent contractor for New Prime. When he began working for New Prime, Oliveira signed an agreement that included an arbitration clause. After New Prime made deductions to Oliveira’s pay, Oliveira brought a class action law suit against New Prime that alleged Fair Labor Standards Act violations and state law claims. At the district court, New Prime moved to compel arbitration. Oliveira objected, stating that Section 1 of the FAA exempts disputes involving contracts of employment of certain transportation workers. New Prime then argued that the applicability of §1 was a question for the arbitrator, not the court. The district court denied New Prime’s motion to compel arbitration, and the U.S. Court of Appeals for the First Circuit affirmed.

The Supreme Court focused on two legal issues: (1) Should a court determine whether a Section 1 exclusion to the FAA applies before ordering arbitration where the parties’ contract contains a delegation clause? (2) Does the transportation worker exclusion apply to independent contractors as well as employees?

The Court answered both inquiries in the affirmative. On the question of arbitrability, the Court reasoned that courts do not have limitless power to compel arbitration of all private contracts. Rather, Section 2 of the FAA states that such power is limited to arbitration agreements involving commerce or maritime transactions, which is informed by Section 1. Thus, in order to properly assert its power to compel arbitration, a court must first determine whether the FAA applies to the contract at issue.

Turning to the second question, the court looked to the historical meaning of “contracts for employment.” Just as the term “employment,” as Congress intended it, does not distinguish between an employer-employee relationship and an independent contractor-purchaser of services relationship, the term “worker,” in the context of §1, also does not distinguish between an employer-employee relationship and an independent contractor-purchaser of services relationship. Therefore, to give proper meaning to §1, the court determined that the exception applies to both employees and independent contractors working in transportation.

Although there is no longer a distinction between employee and independent contractor for purposes of Section 1, New Prime does not allow all contractors to suddenly bypass arbitration and vindicate their rights in court because this exception is limited to transportation workers.