U.S. Supreme Court building in Washington, D.C.

The interests of employers and independent contractors in the transportation industry clashed Wednesday in the U.S. Supreme Court as the justices wrestled with whether those workers must submit their disputes to arbitration.

The major issue in New Prime v. Oliveira centers on an arbitration exemption in Section 1 of the Federal Arbitration Act. The exemption applies to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Besides the question of whether the exemption applies to independent contractors, the justices also agreed to decide a threshold issue of who should answer the question first: a court or an arbitrator.

The challenge is one of three arbitration cases already on the court’s argument docket in the new term.

Besides New Prime, the justices will hear arguments Oct. 29 in Lamp Plus v. Varela on whether the Federal Arbitration Act, or FAA, precludes a court from finding that under state law, an ambiguous arbitration agreement authorized class arbitration. On the same day, Henry Schein v. Archer and White Sales will be argued on whether the Federal Arbitration Act permits a court to decline to enforce an agreement that delegates arbitrability questions to an arbitrator if the court finds the arbitrability claim “wholly groundless.”

The three cases follow on the heels of last term’s blockbuster Epic Systems v. Lewis, a trilogy of challenges in which a 5-4 majority said employee agreements that ban class or collective actions are enforceable under the Federal Arbitration Act.

Dominic Oliveira, an independent contractor and former New Prime driver, filed a putative class action in federal district court in which he charged New Prime with minimum wage violations of the Fair Labor Standards Act and breach of contract. New Prime, an interstate trucking company, moved to compel arbitration. The U.S. Court of Appeals for the First Circuit agreed with Oliveira that as an independent contractor he was exempt from the arbitration act.

During Wednesday’s arguments, Gibson, Dunn & Crutcher partner Theodore Boutrous, counsel to New Prime, argued that the “plain meaning of the statute and its structure, purpose, history and context” make clear that “contracts of employment” in Section 1 include only agreements that establish an employer-employee relationship under common-law agency rules—and that does not include independent contractor agreements.

But Justice Neil Gorsuch told Boutrous that in 1925 when the Federal Arbitration Act was enacted, Congress didn’t distinguish between employees and independent contractors. “There is a lot of historical evidence that ‘contract of employment’ swept more broadly,” he said.

Not “just a lot,” said Oliveira’s counsel, Jennifer Bennett of Public Justice. She argued there was “overwhelming evidence” in 1925 that contracts of employment were a general category for agreements to perform work.

“Congress passed multiple statutes contemporaneous with the FAA that all used the phrase ‘contracts of employment’ to refer to independent contractors’ agreements to perform work,”  Bennett said.

Derek Barella, partner in Schiff Hardin’s labor and employment practice group, said the court’s ruling has “the potential to reverberate throughout the economy” given the “substantial and growing population of independent contractors in the transportation sector, and the fact that many businesses rely on arbitration to resolve disputes.”

 

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