While the Federal Arbitration Act (“FAA”) broadly applies to a wide variety of employment and contracting arrangements, it does contain in Section 1 an exception excluding certain transportation workers from its coverage. On January 17, 2019, in New Prime, Inc. v. Oliveira, the Supreme Court countered its recent wave of opinions favoring arbitration, unanimously holding that Section 1 of the FAA excludes from its coverage interstate truck drivers even if they are independent contractors and not employees.  These workers, the Court held, fall within the FAA’s Section 1 “contracts of employment exclusion.”

Dominic Oliveira contracted with New Prime, Inc. (“New Prime”) to perform interstate truck driving work.  Mr. Oliveira signed an agreement with New Prime requiring that he arbitrate any disputes related to their working relationship.  The agreement also delegated to the arbitrator questions related to its enforceability. Mr. Oliveira subsequently sued New Prime for wage and hour violations and New Prime moved to compel arbitration pursuant to the FAA.  New Prime insisted Mr. Oliveira was an independent contractor, which Mr. Oliveira disputed.  For purposes of the appeal, however, Mr. Oliveira did not dispute that he was an independent contractor performing interstate transportation duties. 

The Court decided two questions of law, the answers for which lower courts disagreed:  (1) when an arbitration agreement delegates to an arbitrator questions regarding whether a matter should be arbitrated, must courts leave the determination whether Section 1 applies to the arbitrator? and (2) does Section 1’s reference to “contracts of employment” apply only to employment relationships, or does it extend to include independent contractors?   

The Supreme Court answered the first question in the negative—the court, not an arbitrator, should decide whether Section 1’s “contracts of employment” exclusion applies before mandating arbitration. The Court held that the delegation clause would apply only if it was contained in a contract that does not trigger §1’s exemption. Thus, if the Section 1 exemption applied, the delegation clause would not.

Turning to the second question, the Court focused on the FAA’s statutory language and the meaning of the language when the FAA was enacted in 1925.  Exploring the master/servant relationship and the interpretation of “contracts of employment” at that time, the Court concluded the FAA’s drafters intended the statute to cover all relationships between employers and their workers, not just employers and employees.  “Back then, dictionaries tended to treat ‘employment’ more or less as a synonym for ‘work.’”  Further, in the Court’s view, legal authority at the time provided no evidence that a “contract of employment” necessarily signaled a formal employer-employee relationship.  Finally, the Court declined to address New Prime’s suggestion that it order arbitration under its inherent authority to stay litigation in favor of an alternative dispute resolution mechanism of the parties, highlighting perhaps the narrow scope of its ruling.  

After New Prime, employers will no longer be able to distinguish independent contractors from employees when assessing application of the FAA’s Section 1 exemption. If these individuals are not covered by the FAA, individual state arbitration laws will apply, and provisions of those laws that otherwise would be preempted by the FAA will be enforceable.