The U.S. Supreme Court has ruled unanimously in New Prime Inc. v. Oliveira that contractors in the interstate and international transportation industries cannot be required by their employers to resolve disputes through arbitration. This is because the Federal Arbitration Act (FAA) specifically excludes “contracts of employment of … seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
The main question in the case involved whether the FAA’s exclusionary language applies to contract drivers who work in interstate or international commerce. There was no doubt that the drivers involved in the case were indeed “workers engaged in foreign or interstate commerce.”
New Prime argued that only employees, as opposed to independent contractors, should be considered to have “contracts of employment” for the purposes of the FAA. The company had intentionally structured most of its drivers as contractors rather than employees and hoped to rely on arbitration to resolve any contract disputes.
New Prime also argued that the question of whether arbitration is required should be decided by arbitrators, not courts. This is because the high court had just ruled in Henry Schein v. Archer & White Sales that courts must send this gate-keeping question to arbitrators for resolution — even if the court believes the arbitration requirement is completely groundless.
However, Justice Neil Gorsuch, writing for the court, distinguished that ruling. Rather than interpreting a contractual requirement for arbitration, here the court was considering whether such a requirement would be legal at all. This question invokes the courts’ statutory authority, which arbitrators don’t have.
In other words, this is a matter for the courts. And, the courts are expected to interpret statutes as bearing the meaning they had “at the time Congress enacted the statute.”
In essence, Gorsuch writes, New Prime’s argument was that, in modern usage, the term “contract of employment” generally means an employer-employee agreement. Under that interpretation, independent contractor agreements wouldn’t be “contracts of employment” under the FAA.
However, when the FAA was passed in 1925, the term would have been applied to both kinds of contract. Gorsuch acknowledged that it is unclear when the terms “employee” and “independent contractor” gained their modern usage. However, it is clear that the phrase “contract of employment” encompassed both types of relationship in 1925.
On the whole, the Supreme Court has vigorously enforced the FAA. This case is notable in that it excludes a large class of employees from required arbitration. If your organization engages in interstate or foreign commerce, you should take careful note of this decision and discuss your contracts with an employment law attorney.