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21 Jan 2019

Bryan Cave Leighton Paisner LLP, on Lexology

USA: Supreme Court bars jurisdictions from compelling arbitration for independent contractors in transportation industry

"Supreme Court Rules that Federal Arbitration Act Does Not Apply to Independent Contractors in the Transportation Industry", 16 Jan. 2019 [Subscription required]

In a decision that could have far-reaching implications for parts of the gig economy, the United States Supreme Court has held that the Federal Arbitration Act bars courts from compelling arbitration with respect to both employees and independent contractors who work in “the transportation industry.” 

In New Prime Inc., v. Oliveira,(January 15, 2019), plaintiff Oliveira, a truck driver working pursuant to an independent contractor agreement, filed a putative class action lawsuit alleging that he and other drivers were in practice treated like employees, rather than independent contractors, and had been denied statutorily required minimum wages, in violation of the Fair Labor Standards Act. 

The independent contractor agreement included a mandatory arbitration provision with a class action waiver and New Prime moved to compel arbitration. 

Both the District Court and First Circuit agreed with Oliveira and the Supreme Court affirmed.

The Court first held that…the court, rather than an arbitrator, must first decide whether the contract is governed by the FAA before referring the matter to arbitration. 

Next, the Court noted that at the time FAA was enacted, there was no generally agreed upon definition of the term “contract of employment”…

Furthermore,…the Court held that Oliveira’s contract was not subject to the FAA and that the District Court lacked authority to compel arbitration…

The Court’s decision in New Prime marks a rather surprising departure from a long line of Supreme Court cases favoring arbitration and enforcing class action waivers…

However, the decision may have significant implications for recent decisions compelling arbitration and upholding class action waivers in lawsuits involving gig economy workers, such as the recent decision in O’Connor v. Uber Technologies, Inc., 904 F.3d 1087 (9th Cir. 2018). 

Fortunately, the Court limited its decision to the question of whether courts are authorized to compel arbitration under the FAA, and expressly did not decide whether courts have inherent power to enforce arbitration agreements, or whether courts might have another source of authority…