Supreme Court: Arbitration Act exemption covers transportation workers

In yet another tangle with the Federal Arbitration Act, the U.S. Supreme Court has unanimously ruled that a broad exemption for transportation workers in the law covers independent contractors, and application of that exemption must be decided by a court.

In New Prime Inc. v. Oliveira, a truck driver filed a class action for labor law violations, including failure to pay minimum wage, against a company with which he had an independent contractor agreement. The company moved to compel arbitration.

The plaintiff asserted Section 1 of the Federal Arbitration Act, the law his employer relied upon, exempts him. The section states it does not apply to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."

The court ruled in Oliveira's favor 8-0, upholding a ruling by the 1st U.S. Circuit Court of Appeals. It decided that the construction of the law requires Section 1's exemption be dealt with before arbitration can be compelled, since the clauses which allow a court to stay litigation and compel come later in the statute.

"While a court's authority under the Arbitration Act to compel arbitration may be considerable, it isn't unconditional," wrote Justice Neil Gorsuch. "The parties' private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the act authorizes a court to stay litigation and send the parties to an arbitral forum."

Further, the justices agreed with Oliveira that the meaning of "contracts of employment" at the time of the law's passage, 1925, referred to agreements to perform work, rather than the modern definition.

"When Congress enacted the Arbitration Act in 1925, the term "contracts of employment" referred to agreements to perform work. No less than those who came before him, Mr. Oliveira is entitled to the benefit of that same understanding today," Gorsuch wrote.

Justice Ruth Bader Ginsburg wrote a concurring opinion noting that while she agreed with the majority in this case, "Congress ... may design legislation to govern changing times and circumstances" in others.

Justice Brett Kavanaugh did not participate in deliberations because he was not confirmed when the case was argued on Oct. 3.

"We are so proud that Dominic Oliveira's long fight to have his claims heard in a court of law has been vindicated by the Supreme Court's decision today," said Jennifer D. Bennett of Public Justice, who represented Oliveira on appeal.

"Today's ruling is a huge step forward for truck drivers," she added. "This decision will enable so many drivers like Dominic who are not being paid what the law requires to go to court and fight for their rights. "

Theodore J. Boutrous Jr. of Gibson, Dunn & Crutcher LLP, who represented the employer-defendant New Prime, did not respond to a request for comment.

Ron Holland of McDermott Will & Emery said the decision wasn't a surprise, based on oral arguments.

"It went along with the alignment of the justices after [Chief Justice John] Roberts agreed with [Justice Sonia] Sotomayor from the bench on her history of the phrase 'contracts of employment,'" he said.

Pointing to Gorsuch's discussion of the history of the Federal Arbitration Act and contemporaneous documents referencing the definition of employment, Holland added that the opinion is "almost like a period piece."

Glenn Danas of Robins Kaplan LLP said the decision is the first time the court has limited the act in nearly 30 years. He added that the case juxtaposes with last week's in Henry Schein Inc. v. Archer & White Sales Inc., where the court ruled that when a delegation clause is present an arbitrator decides whether a claim is arbitrable.

Now, the court has carved out an exception; even with such a clause, a motion to compel has to survive Section 1 before an arbitrator can get involved.

In the other issue involving the definition of "contracts of employment," Danas said, "Predictably, the court brushed aside New Prime's policy arguments, given that the understanding of the term in 1925 was fairly clear."

Felix Digilov of Fisher & Phillips LLP said he expects the case to have far-reaching implications. Though the court only ruled on the exception applying to Oliveira, the reasoning it used applies widely.

"You could drive a truck through this decision," he said, adding that the next phrase to be litigated will be "interstate commerce."

"In a wage and hour context, if I'm a janitor working at a depot and I clean the station, there's an argument I'm 'engaged' in interstate commerce," he said.

The court did not wrestle with the issue in this case because Oliveira's involvement in interstate commerce was undisputed.

"I don't see how this doesn't affect a wide swath of American workers," Digilov said. "I'm hard pressed to think of an industry that isn't, in one way or form, involved in interstate commerce."

Danas and Holland pointed out that another case, Circuit City Stores, Inc. v. Adams, limits the scope of Section 1 to the transportation of goods, which narrows the application of Tuesday's decision a bit.

Digilov added that employers can still structure their arbitration agreements in the transportation industries on state laws where available, even though federal law offers no relief now.

"The New Prime decision shows that the court's pro-arbitration zeal is not limitless, and that only a subset of arbitration cases will engender the stark ideological divisions we saw in Concepcion and Italian Colors v. Amex," Danas said.