The Supreme Court issued another arbitration decision today in New Prime v. Oliveira. And like last week’s decision in Henry Schein, it was unanimous (but Kavanaugh did not participate). Today’s New Prime decision has two key holdings: First, it is for courts, and not arbitrators (regardless of any delegation clause) to determine whether the Federal Arbitration Act applies. Second, the Federal Arbitration Act does not apply to transportation workers.
The Oliveira case did not start out as a dry arbitration case. It started out as a class action by drivers for an interstate trucking company, all of whom were classified as independent contractors by the company, and all of whom alleged wage violations. In response, the company moved to compel arbitration.
But the drivers had a great case for not arbitrating: the Federal Arbitration Act itself. Section 1 carves out “contracts of employment of . . . workers engaged in foreign or interstate commerce.” The drivers argued that they were workers engaged in foreign or interstate commerce. The company’s rebuttal was two-fold: 1) the arbitrator should decide that issue, based on the parties’ delegation clause, and 2) the carve-out only applies to employees, not independent contractors. Those arguments lost; Mr. Oliveira won at both the district court and in the First Circuit.
Writing for the unanimous court, Justice Gorsuch agreed with the lower courts.
With respect to the “who decides” question, the Court emphasized that Section 1 “warns” that nothing in the Act shall apply to those interstate workers. So, the enforcement of Sections 2, and the authority to stay a case and compel arbitration in Sections 3-4, simply don’t apply. The Court emphasizes the “statute’s sequencing” in its analysis — basically commenting that you don’t get to take advantage of step four of the FAA until you have passed step one. So, you can throw your delegation clause out the window when the question is whether the FAA applies at all.
With respect to the substantive question, the Court concluded that Section 1’s exemption is not only for those who meet the current definition of “employee,” but it also encompasses independent contractors. Why? Because… dictionaries. In determining the plain meaning of the text of Section 1 when it was adopted, the Court reviewed a lot of old dictionaries and legal authorities and concluded “the evidence before us remains that, as dominantly understood in 1925, a contract of employment did not necessarily imply the existence of an employer-employee or master-servant relationship.” Therefore, the federal court lacked authority to order arbitration.
This decision raises many questions for me. For example:
- Did SCOTUS grant cert in these two easy cases (Henry Schein and New Prime) just to have some unanimous opinions? Oliveira had already won at the district court and appellate court, so it’s not like SCOTUS needed to jump to his rescue. (I expect Lamps Plus not to be unanimous…)
- Why does it follow logically that if the FAA does not apply, then there is no authority to order arbitration? The parties still have a contract that calls for arbitration, that the drivers are breaching by pursuing their case in court, and there can be remedies for breaching that contract…
- Why would this exception be limited to interstate transportation workers? If the text of the exception includes “workers engaged in foreign or interstate commerce,” that could blow a huge hole in SCOTUS’s arbitration jurisprudence. With the case law on federal preemption in mind, pretty much every worker is engaged in interstate commerce… And Justice Ginsburg’s dissent in Epic Systems suggested that the legislative intent was to exclude all workers from the FAA.
- Why can’t these opinions be more engaging? I swear that Justice Gorsuch was purposely trying to put us to sleep with this one.