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U.S. Supreme Court Rules That Trucking Companies Cannot Use Arbitration Clauses to Avoid Lawsuits from Independent Contractor Drivers

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By Sal Shah

April 10, 2019

On January 15, 2019, in the case of New Prime Inc., v. Dominic Oliveira., Slip Opinion No. 17-340, the U.S. Supreme Court unanimously ruled that trucking companies are not able to rely on arbitration clauses in agreements with independent contractors to avoid lawsuits from drivers.  Under the Federal Arbitration Act (“FAA”), courts are required to enforce private arbitration agreements.  An important exception to the FAA exempted arbitration from being utilized in disputes involving “contracts of employment” of certain transportation workers.  See 9. U.S.C. § 1.  The U.S. Supreme Court, in an opinion written by Justice Neil Gorsuch, expanded the definition of “contracts of employment” to cover contracts for transportation services with independent contractors. 

In New Prime, the driver, Mr. Dominic Oliveira (“Oliveira”) was hired as a driver by a trucking company, New Prime (“NP”).  When Oliveira was initially hired, he was given the option to be hired as an employee, or as an independent contractor.  NP asserted the independent contractor position would be more financially-beneficial for Oliveira.  Accordingly, Oliveira opted to be hired as an independent contractor.  This distinction allowed NP to charge Oliveira for leasing of NP vehicles and required him to pay for his own fuel and equipment through deductions from his paycheck.  These charges would have been paid for by NP if Oliveira was hired as an employee.  After some time of working as an independent contractor, Oliveira discovered these costs exceeded his base salary.  He then terminated his independent contractor agreement and was rehired as an employee of NP.  Once he was an employee, his work duties and commitment were essentially identical to what he did as an independent contractor, but his take-home pay significantly increased.

As a result of his experience, Oliveira brought a class-action lawsuit in U.S. District Court against NP arguing that he and other independent contractors were not being paid fair wages by NP.  NP sought to avoid the lawsuit by compelling arbitration pursuant to an arbitration clause contained in NP’s independent contractor agreements.  NP argued that the FAA’s exception for “contracts of employment” did not cover independent contractor agreements.  NP filed a Motion for Summary Judgment arguing the arbitration clause entitled it to judgment as a matter of law.  This Motion was denied and NP appealed to the U.S. Court of Appeals for the First Circuit, who held in favor of Oliveira.  The First Circuit ruled Oliveira fell within the exception to the FAA covering “contracts of employment” even though Oliveira was technically an independent contractor. 

Following the First Circuit’s ruling, NP appealed to the U.S. Supreme Court.  Observers of the court predicted the ruling could be in favor of NP given the Supreme Court’s trend of ruling in favor of employers in recent decisions.  On January 15, 2019, the Supreme Court defied this trend ruling in favor of Oliveira.  The Court held that the FAA’s exception for “contracts of employment” involving transportation workers involved in interstate commerce apply to any type of employer-employee agreement, including agreements characterized as independent contractor agreements. 

In the opinion, Justice Gorsuch explained that Congress’s intent in writing the exception to the FAA was not to limit the exception to apply only to workers classified as employees, but to a broader classification of all workers.  The Court emphasized the meaning of the term “contracts of employment” when the law was written in 1925.  Gorsuch noted, “[a]t the time, a ‘contract of employment’ usually meant nothing more than an agreement to perform work.”  This interpretation of “contracts of employment” readily covers independent contractors. 

The use of independent contractors has been a common practice in the trucking and transportation industry.  Trucking and transportation companies are precluded from enforcing arbitration clauses with personnel engaged in interstate commerce, which could lead to increased litigation costs, as disputes which were previously arbitrable are now required to be litigated in court. 

It is important to note there was no dispute in New Prime that Oliveira was engaged in interstate commerce.  The decision only extends to workers engaged in interstate commerce.  In light of this decision, trucking and transportation employers are advised to revisit their independent contractor agreements with personnel who are engaged in interstate commerce. 

If you have any questions with respect to this decision or any issue regarding Commercial Transportation Liability, please contact any member of Reminger’s Trucking and Commercial Transportation Practice Group.

This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.

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