Supreme Court Affirms First Circuit in Federal Arbitration Case Contracts of Employment Broadly Construed (Revisited)

New Prime, Inc. v. Oliveira, 2019 WL 189342, 2019 U.S. LEXIS 724 (Jan. 15, 2019)

By: Eric M. Whitehead

The Supreme Court recently issued its decision in New Prime, Inc. v. Oliveira. Justice Gorsuch wrote for the court (Justice Kavanaugh took no part in the decision) with Justice Ginsburg writing a concurring opinion. Petitioner, New Prime, Inc. (“New Prime”), sought for the court to enforce an arbitration agreement pursuant to the Federal Arbitration Act (“FAA”) after Petitioner, Dominic Oliveira (“Oliveira”), filed a class action suit. After the U.S. District Court and U.S. First Circuit refused to enforce arbitration through an exception under the FAA, writ of certiorari was granted by the Supreme Court. Here, the Court addressed two issues: (1) whether a court or arbitrator should determine if a §1 exclusion to the FAA applies prior to compelling arbitration; and (2) whether Oliveira’s work agreement with New Prime qualifies under the FAA as a “contract of employment,” excepting the court’s statutory authority to enforce arbitration under §§ 3 and 4 of the Act. In an 8-0 decision, the Court held that (1) a court should first determine whether the exclusion applies; and (2) Oliveira’s agreement to perform work for New Prime fell within the FAA’s “contract of employment” exception under §1.Oliveira worked as a driver for New Prime, an interstate trucking company. The parties’ operating agreement both specifically classified Oliveira as an independent contractor; it also contained a mandatory arbitration clause. After Oliveira brought a class action suit in federal court alleging a denial of lawful wages, New Prime moved the court to refer the entire matter to arbitration. The trial court and court of appeals denied the motion. Sections 3 and 4 of the FAA grant the authority, and often mandate, for a court to stay litigation and compel arbitration according to the terms of the parties’ agreement. 9 U.S.C §§ 3 and 4. However, §1 of the FAA excludes “contracts of employment of. . . workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The parties agreed that the work involved interstate commerce; however, New Prime argued that the §1 term “contracts of employment” refers solely to contracts establishing a traditional employer-employee relationship. New Prime contended that because the contract explicitly classifies Oliveira as an independent contractor, the requisite employer-employee relationship could not exist where Oliveira’s status could fall within the scope of the §1 exception. Because the issue raises a question of law, the Court affirmed the First Circuit’s determination that the court must decide for itself whether the contract falls within the exclusion before ordering arbitration.The second issue involved the meaning of the term “contracts of employment.” Oliveira argued that despite his independent contractor classification under the agreement, the contract was nonetheless an agreement to perform work. Justice Gorsuch conveyed that at the time of the FAA’s adoption in 1925, a “contract of employment” ordinarily meant an agreement to perform work, as “all work was treated as employment.” Such an interpretation within the context of the 1925 enactment excludes the more contemporary, common law requirement that “employment” solely refer to an agreement between “masters and servants.” Furthermore, that §1 excludes “contracts of employment of . . . any. . . class of workers,” not “employees” or “servants,” indicates Congress’s intent for the exclusion to encompass work performed by independent contractors. Accordingly, the Court again affirmed the First Circuit and held that “contracts of employment” are agreements to perform work. It is not restricted solely to the employer-employee relationship. The contract thus fell within the purview of the exclusion of the FAA, thereby abrogating the court’s authority to compel arbitration.The decision may have further implications in maritime employment contracts as §1 also excludes from the application of the FAA “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” For instance, not all maritime workers are classified as “seamen”; however, many maritime workers certainly contract to perform work indicative of being engaged in foreign or interstate commerce. This possibility necessarily raises the issue of whether this decision will apply to seamen and other workers who fall within the exclusion and are borrowed employees. Given the Court’s broad interpretation of “contracts of employment,” the potential arises for the §1 arbitration exception of the FAA to be imputed to joint employers of borrowed employees, even where a mandatory arbitration clause exists within the respective agreement.