On January 15, 2019, in the case of New Prime Inc., v. Dominic Oliveira.,Slip Opinion No. 17-340, the U.S. Supreme Court unanimously ruled that trucking companies are not able to rely on arbitration clauses in agreements with independent contractors to avoid lawsuits from drivers. Under the Federal Arbitration Act (“FAA”), courts are required to enforce private arbitration agreements. An important exception to the FAA exempted arbitration from being utilized in disputes involving “contracts of employment” of certain transportation workers. See 9. U.S.C. § 1. The U.S. Supreme Court, in an opinion written by Justice Neil Gorsuch, expanded the definition of “contracts of employment” to cover contracts for transportation services with independent contractors.
In New Prime, the driver, Mr. Dominic Oliveira (“Oliveira”) was hired as a driver by a trucking company, New Prime (“NP”). When Oliveira was initially hired, he was given the option to be hired as an employee, or as an independent contractor. NP asserted the independent contractor position would be more financially-beneficial for Oliveira. Accordingly, Oliveira opted to be hired as an independent contractor. This distinction allowed NP to charge Oliveira for leasing of NP vehicles and required him to pay for his own fuel and equipment through deductions from his paycheck. These charges would have been paid for by NP if Oliveira was hired as an employee. After some time of working as an independent contractor, Oliveira discovered these costs exceeded his base salary. He then terminated his independent contractor agreement and was rehired as an employee of NP. Once he was an employee, his work duties and commitment were essentially identical to what he did as an independent contractor, but his take-home pay significantly increased.
As a result of his experience, Oliveira brought a class-action lawsuit in U.S. District Court against NP arguing that he and other independent contractors were not being paid fair wages by NP. NP sought to avoid the lawsuit by compelling arbitration pursuant to an arbitration clause contained in NP’s independent contractor agreements. NP argued that the FAA’s exception for “contracts of employment” did not cover independent contractor agreements. NP filed a Motion for Summary Judgment arguing the arbitration clause entitled it to judgment as a matter of law. This Motion was denied and NP appealed to the U.S. Court of Appeals for the First Circuit, who held in favor of Oliveira. The First Circuit ruled Oliveira fell within the exception to the FAA covering “contracts of employment” even though Oliveira was technically an independent contractor.
Following the First Circuit’s ruling, NP appealed to the U.S. Supreme Court. Observers of the court predicted the ruling could be in favor of NP given the Supreme Court’s trend of ruling in favor of employers in recent decisions. On January 15, 2019, the Supreme Court defied this trend ruling in favor of Oliveira. The Court held that the FAA’s exception for “contracts of employment” involving transportation workers involved in interstate commerce apply to any type of employer-employee agreement, including agreements characterized as independent contractor agreements.