Supreme Court Holds That Federal Arbitration Act Permits Litigation of Disputes By Workers Bound by Independent Contractor Agreements

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The United States Supreme Court held in the unanimous decision of New Prime Inc. v. Oliveira earlier this year that the Federal Arbitration Act's exclusion as to contracts of employment necessitated that the parties' arbitration clause be overridden and the plaintiff be allowed to pursue his lawsuit in the Massachusetts federal courts.

The Federal Arbitration Act ("FAA") requires courts to enforce arbitration clauses in private contracts between parties and compel the parties to arbitrate a dispute when one party files a lawsuit arising out of the party's dispute. However, § 1 of the FAA provides that "nothing herein" shall act to compel arbitration in disputes involving "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." In New Prime Inc., the contracts between Dominic Oliveira and New Prime, an interstate trucking company, labeled the truckdriver as an independent contractor, rather than an employee, and further provided that "any disputes arising out of the parties' relationship should be resolved by an arbitrator-even disputes over the scope of the arbitrator's authority." Oliveira brought a putative class action in federal court, alleging that he and other drivers were being wrongfully denied lawful wages below the statutorily due minimum wage.

New Prime argued that the contracts governing Oliveira's work as a truckdriver were not subject to the exception embodied in § 1 of the FAA because those agreements were not "contracts of employment," and urged the court to order that the question as to whether that dispute must be arbitrated should be decided by an arbitrator, rather than by a court. The Supreme Court closely examined the meaning of the term "employment contract" as it would have been understood by the drafters of the 1925 Federal Arbitration Act, noting that the body of literature suggesting that an employment contract was only a contract governing an explicitly-labeled employee was a more recent development. The Court also made particular note of Congress's use of the phrase "any other class of workers engaged in foreign or interstate commerce" in § 1, which the Court said "suppl[ied] further evidence that Congress used the term 'contracts of employment' in a broad sense to capture any contract for the performance of work by workers." Thus, the Court held that because the statutory term 'contracts of employment' referred to agreements to perform work when enacted by Congress in 1925 rather than the narrow explicit employer-employee contract definition suggested by New Prime, the contracts between Oliveira and New Prime fell squarely within the exception in § 1, and the federal courts lacked authority under the Federal Arbitration Act to compel the parties to arbitrate Oliveira's claims.

New Prime Inc. v. Oliveira is a stark reminder to parties to arbitration agreements in an employment or independent contractor relationship that federal courts will closely adhere to the language of the Federal Arbitration Act and likely refuse to compel the parties to arbitrate, even when that decision is at odds with the explicit language of an agreement. For more information on Fitch Law Partners' arbitration practice, please visit our website.

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