On January 15, 2019, the U.S. Supreme Court issued a ruling in New Prime Inc. v. Dominic Oliveira (No. 17-340) clarifying whether the Federal Arbitration Act (FAA) applied to arbitration provisions within independent contractor agreements for individuals working in certain transportation positions. The high court held that interstate truck drivers’ independent contractor agreements qualified as “contracts of employment” for workers “engaged in...interstate commerce,” and therefore these independent contractors were excluded from mandatory arbitration under Section 1 of the FAA.
Section 1 of the FAA excludes from mandatory arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The court first addressed whether a court or an arbitrator should determine whether an exclusion in the FAA applied to a particular arbitration agreement. Although the arbitration provision before the court stated that an arbitrator should decide threshold questions of arbitrability, the court held that only a court could determine whether an arbitration agreement was excluded from coverage under the FAA.
The court then addressed interstate trucking company New Prime Inc.'s argument that the phrase “contracts of employment” applied only to employment contracts, and that independent contractor agreements containing arbitration provisions were still enforceable under the FAA. The court rejected this argument, finding that the phrase “contract of employment” did not necessarily imply the existence of an employer-employee relationship. The court reasoned that, at the time the FAA was enacted, "employment" was a synonym for "work," and held that workers included individual contractors.
Companies in the transportation industry that are engaged in interstate commerce should consult with counsel to determine whether modifications to their independent contractor agreements are necessary under this new ruling.