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U.S. Supreme Court Decision Supports Worker Rights
A recent decision by the Supreme Court of the U.S. may allow certain workers who have arbitration clauses in their employment contracts to pursue their claims in court rather than being forced into arbitration. In New Prime v. Inc. v. Oliviera, 586 U.S.____2019, the Supreme Court affirmed the decision of the U.S. Court of Appeals for the First Circuit that the court was unable to compel arbitration in the case of a man who worked as a truck driver.[1] This ruling may offer some hope to workers who want to pursue their employment rights in court.
Factual and Procedural Background of the Case
Dominic Oliviera was a truck driver who was hired by New Prime, a trucking carrier.[2] When he was initially hired, he was first required to complete a 10,000-mile apprenticeship hauling freight for the company without pay. Then, he was required to complete a 30,000-mile trainee stint during which he was compensated at a rate of $4 per hour. Once Oliviera completed his time as an apprentice and trainee, the company then designated him as an independent contractor.
Despite calling Oliviera an independent contractor, the company forced him to lease his truck from a company that was owned by the same owners of New Prime. He was also required to purchase his own gas at gas pumps that were owned by New Prime and to buy his equipment at a store that was owned by New Prime. If Oliviera had been classified as an employee, New Prime would have been responsible for those expenses. Since the company classified him as an independent contractor, it instead deducted the expenses from his paychecks. This resulted in some of Oliviera’s paychecks being negative so that he was essentially paying to work at the company rather than the company paying him for his work.
In 2015, Oliviera filed a lawsuit against New Prime on his own behalf and as a potential class action representing thousands of New Prime drivers who had been classified as independent contractors. He argued that the contractors had been misclassified and should have been classified as employees because the company controlled the manner in which they performed their jobs. He also argued that New Prime had failed to pay the workers the statutorily required mandatory minimum wage for the hours that they worked.
New Prime moved for the court to compel arbitration and to stay the litigation pending arbitration based on a mandatory arbitration clause that was contained in Oliviera’s work contract. The contract also included a delegation clause that stated that the arbitrator would be able to decide even initial questions such as whether a case was one that could be compelled to arbitration or if it should remain in court.
The District Court found that it could not compel Oliviera to enter arbitration, so New Prime filed an appeal with the U.S. Court of Appeals for the First Circuit. The First Circuit affirmed the lower court’s decision, finding that courts must first determine whether cases fell under the provisions of the Federal Arbitration Act or if they instead fell under the exclusions that are contained in section one. The appeals court also held that the term employment contract in section one of the Federal Arbitration Act encompasses both contracts between employers and employees as well as between companies and independent contractors who work for them. New Prime filed a writ of certiorari to the Supreme Court, which agreed to hear the case.
Issue: 1) Whether a Court can Keep a Case When There is a Delegation Clause in the Contract; and 2) Whether the Term Contract of Employment in Section one of the Federal Arbitration Act includes Contracts Between Independent Contractors and the Companies for Which They Work
The Federal Arbitration Act is a law that mandates that courts generally enforce arbitration clauses unless an exception applies. Under section one of the FAA, the act doesn’t apply to employment contracts of railroad employees, seamen, and other workers who are engaged in interstate or foreign commerce. As a truck driver, the parties agreed that Oliviera was engaged in interstate commerce. However, New Prime argued that the exclusion of section one didn’t apply because Oliviera’s contract was an independent contractor contract rather than an employment contract. New Prime also argued that since its contract contained a delegation clause granting the authority to decide initial questions to the arbitrator, the court couldn’t even determine whether section one applied or not.
Rule: The Federal Arbitration Act Does not Apply to Contracts of Employment for Railroad Workers, Seamen, or Workers who are Engaged in Interstate Commerce. By Their Nature, Delegation Clauses are a Type of Arbitration Clause.
The Federal Arbitration Act mandates that courts must enforce arbitration clauses in contracts of employment in general. This means that unless an exception applies, the courts must order cases to go to arbitration rather than being litigated in court. Oliviera argued that the exception in section one did apply to him since he was a worker who was engaged in interstate commerce. He also argued that his contract with New Prime was a contract of employment under the act’s original meaning. New Prime argued that Oliviera did not fall under the exception because he was an independent contractor and that a contract of employment referred only to implied or express contracts between employers and employees. It also argued that the delegation clause in its contract prevented the court from even determining whether the exception applied.
Analysis
The Supreme Court first looked at sections three and four of the FAA and noted that courts are generally required to compel arbitration and to stay litigation when two parties have agreed to arbitrate disputes and one party later seeks to pursue a remedy in court. However, the court noted that the authority to compel arbitration was limited by sections two and one. In section two of the FAA, the Act only applies if the arbitration clause is contained in a contract for a transaction involving commerce or in a maritime transaction. Section one of the Act further limits the authority of the courts to compel arbitration by specifically excluding seamen, railroad employees, and workers who are engaged in interstate or foreign commerce.
The Supreme Court then looked at the term “contract of employment” and what it meant in 1925 when the Federal Arbitration Act was written. Both sides presented evidence about the etymology of the phrase and of the term employment itself. New Prime argued that the terms independent contractor and employee were already firmly cemented in the language at the time that the FAA was written so that the phrase “contract of employment” only applied to employees and not to independent contractors. The Supreme Court disagreed, however. It found the arguments of Oliviera more persuasive. At the time that the FAA was written, the phrase “contract of employment” referred to contracts between both employees and independent contractors and the companies for which they worked.
The Supreme Court noted that the word worker in section one was broader than the term employee, and the exception specifically listed workers in interstate commerce as a class of people whose contracts were exempted from the FAA. The court also held that a delegation clause is simply a type of arbitration clause, and the lower court was right in ignoring it because it did not have the authority to compel arbitration under the FAA in the first place.
Conclusion
The Supreme Court affirmed the ruling of the Court of Appeals for the First Circuit. This means that Oliviera’s class action lawsuit against New Prime will be allowed to proceed.
This decision is important for workers because the federal courts have recently been broader in their enforcement of arbitration clauses. This ruling provides workers some hope that they might be able to pursue their rights in court rather than being forced into arbitration. In many cases, arbitration favors corporations over workers because of the preexisting relationships many arbitrators have with the companies that hire them.
Contact an Experienced Los Angeles Employment Lawyer
If you believe that you have not been paid what you are owed, you may have legal rights. Contact the Law Offices of Steven M. Sweat to schedule a consultation.