In a rare win for plaintiffs seeking to avoid arbitration, the U.S. Supreme Court rejected a trucking company’s attempt to compel arbitration in a driver’s proposed minimum wage class action. The Court held that the Federal Arbitration Act’s exemption for interstate transportation workers applies not only to employees, but also to those classified as independent contractors.
Under Section 1 of the FAA “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” are exempt from arbitration. The trucking company petitioned the Court to overturn the First Circuit’s ruling that the applicability of the Section 1 exemption was a question for the court and that the term “contracts of employment” included independent contractor agreements. The First Circuit’s opinion was criticized by employers in the trucking and shipping industries, who argued that it would effectively eliminate arbitration as a means for dispute resolution in the industry.
A unanimous Supreme Court, with Justice Kavanaugh recusing himself, held that courts must decide whether the Section 1 exemption applies before compelling a matter to arbitration. The Court also found that the First Circuit correctly held that it lacked authority to compel arbitration of the driver’s lawsuit because the FAA’s exception for “contracts of employment” referred to “agreements to perform work” and, thus, included independent contractor agreements.
By including independent contractors in the FAA’s Section 1 exemption, the Supreme Court’s decision will likely have a major impact on employment disputes in the transportation and shipping industries, which rely heavily on independent contractors. It also likely means that more of these disputes will be heard by a judge, rather than an arbitrator.