United States: Supreme Court: FAA Does Not Apply To Arbitration Agreements With Interstate Or Foreign Transportation Workers

Last Updated: July 2 2019
Article by Robert E. Day

On January 8, the Supreme Court handed down its second unanimous opinion on arbitration in as many weeks, New Prime Inc. v. Oliveira, 586 U.S. ___ (Jan. 15, 2019). The first opinion, Schein (as discussed here) requires courts to interpret delegation clauses strictly and enforce them as written. New Prime reminds us that courts must answer preliminary questions about the Federal Arbitration Act's ("FAA's") applicability before exercising any authority the FAA gives courts—including the authority to compel arbitration. More specifically, the Court held that the FAA does not apply to agreements between employers and certain transportation workers, regardless of whether they qualify as employees or independent contractors. The FAA thus gives a court no authority to compel such workers to arbitrate rather than sue in court.

The case arose out of an employment dispute between a trucking company, New Prime, Inc., and one of its drivers, Oliveira. Id., slip op. at 1. Like many New Prime drivers, Oliveira was hired as an independent contractor, but he argued (on behalf of a proposed class) that he actually qualified as an employee, so his below-minimum-wage pay was unlawful. Id. at 2. New Prime moved to compel arbitration, noting its contract with Oliveira included an arbitration clause stating that his claims—including any dispute over their arbitrability—must be resolved by an arbitrator. Id.

Oliveira countered with a two-step argument. First, before enforcing the arbitration agreement (including its delegation clause), the court must decide whether the agreement itself falls within the FAA. Second, § 1 of the FAA exempts "contracts of employment of ... workers" with interstate transporters. The court thus lacked authority under the FAA to compel arbitration. Id.

Both arguments persuaded the First Circuit, which affirmed the denial of New Prime's motion to compel arbitration. Oliveira v. New Prime, Inc., 857 F.3d 7, 24 (1st Cir. 2017). They convinced the Supreme Court too. Regarding the first, the Court explained that while the FAA authorizes a court to compel arbitration if parties agreed to arbitrate, the statute also defines the agreements to which it applies. New Prime, slip op. at 3–6. Specifically, § 2 of the FAA defines arbitration agreements as "written provision[s] in . . . contract[s] evidencing a transaction involving commerce." And § 1 explicitly exempts "contracts of employment of . . . any . . . class of workers engaged in foreign or interstate commerce" from that definition of "commerce." Id.

So before a court enforces an agreement to arbitrate, it must first resolve the "antecedent statutory inquiry" to ensure the agreement is one the FAA authorizes courts to enforce. Id. at 5. As the Court explained, "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." Id. at 4. In other words, the question of whether the exception in § 1 applies is a preliminary question for the court, not the arbitrator, to address and decide.

The Court then evaluated whether the agreement between Oliveira and New Prime fell within the "contracts of employment" exception of § 1. Notably, a growing "judicial chorus" of lower courts from various jurisdictions had answered in the negative. Oliveira, 857 F.3d at 17–18 & n.16 (collecting cases). These courts distinguished independent-contractor agreements from employer-employee agreements, and held that independent-contractor agreements were not "contracts of employment" excluded by § 1. See id.

But this distinction between types of employment contracts developed long after 1925 when Congress enacted the FAA. Adopting a strong originalist framework, the Court explained that the correct interpretation of § 1 was one that interpreted the text according to its "ordinary . . . meaning . . . at the time Congress enacted the statute." Id. at 6 (quoting Wisc. Central Ltd. v. United States, 585 U.S. ___, slip op. at 9 (2018)) (internal quotations omitted). And, after reviewing an extensive array of historical sources (including contemporaneous dictionaries, Supreme Court cases, state court cases, and various federal and state statutes), the Court concluded that in 1925 "a 'contract of employment' usually meant nothing more than an agreement to perform work." New Prime, slip op. at 7–10.

With the statute's plain meaning established, the issue was easily resolved: Oliveira's agreement was a "contract of employment" under § 1; his contract was explicitly exempt from the FAA; and the district court lacked authority under the FAA to compel arbitration. Neither the arbitration agreement as a whole nor its delegation clause fell within the FAA's scope. The First Circuit's judgment refusing to compel arbitration was affirmed.

There are several important takeaways from New Prime. First, companies engaged in interstate or foreign transportation should note its specific holding: a transportation worker's status as an independent contractor no longer protects the company's arbitration agreement with him or her under the FAA. To the contrary, the FAA gives courts no authority to compel such transportation workers to arbitrate, even if the contract says they must.

From a broader perspective, New Prime cautions courts to first ensure that an agreement falls under the FAA before compelling the parties to take any dispute to an arbitrator—even when facing crystal clear delegation clauses. Some courts had mistakenly considered the question of whether the FAA covered the agreement as one of arbitrability, ceding its resolution to an arbitrator when the parties' agreement had a delegation clause. See Green v. SuperShuttle Int'l, Inc., 653 F.3d 766 (8th Cir. 2011). New Prime establishes this is improper.

In this sense, New Prime is a good companion to Schein. Both implicate the court's role when reviewing delegation clauses, and the resulting holdings nicely dovetail. New Prime requires courts to ensure the parties' agreement falls within the FAA's scope before turning to the delegation clause's text; Schein requires courts to interpret that text strictly (after conducting the New Prime inquiry) and enforce it as written.

The opinion is also notable for what it did not address. The Court declined to consider New Prime's argument—raised for the first time before the Court—that "courts . . . enjoy the inherent authority to stay litigation in favor of an alternative dispute resolution mechanism of the parties' choosing." Id. at 14–15. The Court observed that it "granted certiorari only to resolve existing confusion about the application of the [FAA]." Id. at 15. There may yet remain a means for companies to enforce alternative dispute resolution agreements even when the FAA gives courts no authority to enforce them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions