In New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019), the United States Supreme Court recently addressed concerns over the enforceability of arbitration agreements with independent contractors “engaged in foreign or interstate commerce” by settling two contentious issues:
- When an employment agreement delegates questions of arbitrability to an arbitrator, must a federal court allow the arbitrator to resolve disputes over the application of the Federal Arbitration Act’s (“FAA”) exclusions
- Whether hiring an independent contractor constitutes a “contract of employment” as contemplated by the FAA
If you hire truck drivers as independent contractors, and your employment agreement contains a mandatory arbitration provision, this decision will impact your relationship with those contractors as federal courts will seemingly no longer compel arbitration of the underlying issue.
What happened in New Prime Inc. v. Oliveira?
Congress adopted the FAA to promote alternative means of resolving disputes and to establish a “federal policy favoring arbitration agreements.” To do so, the FAA requires that federal courts enforce private arbitration agreements and compel arbitration, albeit with certain exceptions.
In New Prime Inc. v. Oliveira, Dominic Oliveira – an independent contractor for an interstate trucking company – entered into an employment agreement containing a mandatory arbitration provision. Soon thereafter, Oliveira filed a class action lawsuit, in federal court, against New Prime alleging that New Prime denied its drivers lawful wages. When New Prime moved to compel arbitration pursuant to the parties’ agreements, Oliveira argued that the underlying court had no authority to compel arbitration because he was exempt under the FAA’s prohibitions against compelling arbitration in disputes involving the “contracts of employment” of certain transportation workers.
After examining the historical underpinnings of the FAA and applying fundamental cannons of statutory construction, the United States Supreme Court held that:
- The court, not the arbitrator, decides whether the FAA’s exclusions apply
- “Contracts of employment” include both employees and independent contractors
These holdings which will impact verdicts for years to come
How could this case affect your business?
New Prime Inc. v. Oliveira is a testament to the ever-changing dynamics of our legal system and the importance of periodically reviewing your employment agreements, especially if those agreements contain arbitration provisions. While arbitration provisions are generally enforceable, like most laws, there are exceptions.
Whether your business hires employees or independent contractors, ambiguities can and do arise. It is critical to consult with a seasoned litigation attorney who can help you develop an effective legal plan designed to obtain a successful outcome in employment and labor disputes.