Transpo Worker Ruling A Rare Blow To Arbitration Pacts

Law360— Linda Chiem

The U.S. Supreme Court's Tuesday ruling that transportation workers, regardless of whether they're employees or independent contractors, are exempt from the Federal Arbitration Act chipped at the shield some employers have long relied on to insulate themselves from legal attacks, experts say.

The high court, which in recent years has blessed arbitration agreements in a series of decisions, handed workers a rare win with a unanimous 8-0 decision broadly interpreting the meaning of "contracts of employment" for the purposes of a Federal Arbitration Act exemption covering transportation workers.

The ruling came in a case involving trucking company New Prime Inc. and individual trucker Dominic Oliveira, who launched a proposed class action alleging the company failed to pay independent contractor truck-driver apprentices a proper minimum wage.

By determining the FAA's Section 1 exemption for interstate transportation workers applies to all such workers, regardless of whether they are classified as employees or independent contractors, the justices cleared a path for transportation workers to pursue legal remedies for alleged workplace violations in court rather than behind closed doors in arbitration.

For the plaintiffs' bar, the Supreme Court has loosened the restrictions the FAA placed on transportation workers pursuing employment lawsuits — most notably, worker misclassification claims — against companies engaged in interstate commerce. For the defense bar, the ruling, though narrow, upends the transportation sector's longtime reliance on precedent favoring arbitration to deflect such disputes, experts say.

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While the decision puts a chink in the armor for transportation companies, experts explained that the ruling's scope — confined to the Section 1 exemption, which exempts from arbitration "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce" — doesn't spell doom for employers.

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Experts say the decision is also notable for bringing together the conservative and liberal wings of the Supreme Court on the statutory construction of the FAA and Section 1.

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In this case, New Prime and Oliveira at least agreed that Oliveira qualified as a "worker engaged in interstate commerce." So the high court's decision would just boil down to what the term "contracts of employment" meant or, more importantly, what Congress meant for that term to cover when it enacted the FAA nearly a century ago in 1925.

So while the ruling is no doubt significant for the transportation sector, experts say how problematic the decision will be for transportation companies going forward will depend on the specific nuances of their workplace disputes.

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Industry groups like the U.S. Chamber of Commerce and American Trucking Associations have said that motor carriers frequently contract with independent businesses to haul freight on their behalf. Often, motor carriers and their independent contractors will agree to arbitrate any disputes that arise between them — including, in some cases, the question of whether a given dispute is arbitrable — with the expectation that the FAA will require the parties to honor those agreements.

But the First Circuit's decision, which the Supreme Court has now affirmed, upended that expectation by going too far and effectively nullifying the advantages of arbitration in misclassification disputes, the groups have said. 

Plaintiffs' attorneys have said that because protections for workers largely hinge on employment status — mostly because the current outsourcing trend wasn't an issue when such foundational protections were enacted decades ago — economic security for workers depends on strong application of employment laws. And any decision that advances their pursuit of legal remedies in a courtroom is one they will embrace.

Importantly, the justices' decision on Tuesday underscores that there are limits on the judiciary's favoritism for arbitration, according to Nantiya Ruan, of counsel for plaintiffs' firm Outten & Golden LLP and a professor at the University of Denver Sturm College of Law.

"The exemption from arbitration is not limited to those that can prove at the outset one of the legal tests for establishing an employment relationship," Ruan said. "This is extremely important for transportation workers, where laws governing the commercial trucking industry do not delineate between employees and independent contractors because of abusive practices by motor carriers."

Ruan explained that going forward, the court should also recognize that the FAA was written as a mechanism for resolving commercial and admiralty disputes, and that the FAA does not contain any broad declaration of policy or identify congressional findings. In recent years, the Supreme Court's FAA jurisprudence has focused more on its interpretation of policy than its text, Ruan said.

"In keeping with the New Prime decision today, in which the historical context of the FAA is deemed critical to its interpretation, the court should also recognize that the FAA was drafted to encourage arbitration between two sophisticated business entities [and] not to encourage arbitration where one party — such as an employee — has limited legal experience, is not a repeat player and does not understand the ramifications of being forced to give up the legal right to hear their claims in court," Ruan said.

Ceilidh Gao, a staff attorney with the National Employment Law Project, commended the decision as a rare win for workers when it comes to forced arbitration clauses, which she says robs working people of basic labor standards.

"Forced arbitration takes away people's right to have their day in court. It's a backdoor way of repealing laws on the books," Gao said in a statement Tuesday. "Wage laws, anti-discrimination laws, anti-harassment laws and more — these protections are of little use if workers can't enforce them. We must demand from Congress a legislative solution that restores the fundamental right of workers to band together in a public court of law."

The justices backed the notion that Congress had the foresight in 1925 to prohibit companies operating across state lines from forcing independent contractors into arbitration by turning to dictionaries of the era to gauge the meaning of "employment." The decision is a pivot from the court's blessing of employer arbitration agreements, including ones containing class waivers, in rulings such as Epic Systems Corp. v. Lewis.

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