Amicus Preview, Part 2: The Independent Contractors Want Their FAA Sec. 1 Exemption

By Sara Higgins and Russ Bleemer

The respondents’ amicus briefs urging the U.S. Supreme Court to affirm the First U.S. Circuit Court decision in New Prime Inc. v. Oliveira, No. 17-340, which was argued earlier this month, focus on statutory history and the plain meaning of the Federal Arbitration Act.

They argue that independent contractors are exempt from FAA application like other transportation workers under a “contract of employment.” That exemption is in the act itself, in Sec. 1, which states, “. . . nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

In other words, the unions, scholars and think tanks excerpted below say the protections the 1925 FAA drafters provided to transportation employees also goes to independent contractors.  Some amicus argue that the term “employees” meant something different then than it means now.

One brief tackles the arbitrability issue that is before the Court, too. Though most amicus filers on both sides focused on the merits of whether the FAA applies to independent contractors, the source of the arbitrability decision–on whether the matter will be heard in arbitration to be made by either a court or an arbitrator–also is expected to be a part of the Supreme Court’s opinion.

The material below covers the respondents’ friend-of-the-court briefs backing independent truck driver Dominic Oliveira. For the petitioner’s briefs, which were filed first, as well as for background on the case and links to deeper dives into the facts and the issues, see the immediately previous CPR Speaks feature, Sara Higgins, “Amicus Preview: New Prime’s New Look at Mandatory Arbitration,” CPR Speaks (Oct. 2)(available at https://bit.ly/2zNqYUF).

In support of Respondent Oliveira:

  1. American Association for Justice
  • AAJ, which represents trial lawyers, offers a broad historical argument that says that the FAA Sec. 1 exemption from the law’s application includes all transportation workers, not just seamen and railway workers.
  • The Washington, D.C.-based association is concerned that the Federal Arbitration Act constructions by petitioner New Prime undermine the right of U.S. workers to pursue their statutory and common-law rights in a judicial forum.
  • AAJ believes it is clear that all workers in the transportation sector, whether “employees” or “independent contractors,” were meant to be exempted from the FAA.
  • New Prime’s narrow construction belies the FAA enactment history, Congressional intent, and basic principles of contract construction as applied by the Court and elsewhere. Independent vehicle owner-operators and others contracting to perform work themselves certainly existed at the time the FAA was passed, and had Congress not wished the exemption to apply to all who actually worked in the transportation sector, it would have said so.
  • That Congress meant to exempt all workers in the transportation section from the FAA– not limited or reliant upon how that worker happened to be paid—is consistent with the Court’s decisions and other Congressional action.
  • In historical context, the use of the term “contracts of employment” routinely included the “employment” of “independent contractor” drivers and, hence, is not meant to exclude any drivers from the benefit of the exception. The Sec. 1 exemption, which was urged by American Federation of Labor lobbyists at the 1925 FAA enactment, the brief notes, “would surely have included all members of one of its most important affiliates, the Teamsters.”
  1. Public Citizen, Inc.
  • The Washington consumer advocacy group, a frequent participant in federal arbitration litigation on behalf of consumers and employees, submits its amicus brief to address one of the two issues raised by petitioner New Prime: whether, when a contract contains an arbitration provision including a clause delegating questions of the arbitrability of a matter to an arbitrator, the FAA requires a court to compel arbitration of the issue whether the FAA even applies to the contract.
  • The brief notes that both the amicus and the parties focus more on the merits issue—that is, whether the FAA exemption applies to all transportation workers—and pay insufficient attention to the arbitrability issue before the Court.
  • Although New Prime’s argument—that the FAA requires a court to refer the issue of its own applicability to an arbitrator without first addressing a substantial argument that the FAA doesn’t not apply to the contract containing the delegation clause the court is being asked to enforce—seems counterintuitive, Public Citizen says its amicus brief addressing the issue may assist the Court in reaching a decision that adds clarity to arbitration law and helps define the limits of the Court’s rulings on the subject.
  • The FAA cannot, and does not, require a court to enforce any arbitration agreement unless the court determines that the FAA applies to that agreement.
  • “The requirement that a court decide whether the contract at issue is excluded from the FAA’s coverage by section 1 before ordering arbitration of any issue (including the section 1 issue itself) is critical, because any order compelling arbitration under the FAA is necessarily applying the FAA to give effect to a purported agreement to arbitrate. A court may not apply the FAA where the FAA itself provides that it is inapplicable.”
  • New Prime’s invocation of its delegation clause and the principle of “severability” cannot justify application of the FAA to a contract to which the FAA does not apply.
  1. Sheldon Whitehouse, D., R.I.
  • Whitehouse, a former state attorney general and U.S. Attorney, invokes Alexis de Tocqueville, Blackstone, and Machiavelli at the outset of his brief, which launches a broadside at the Court’s arbitration jurisprudence. He writes that he files the brief “to draw attention to the Court’s steady march of decisions eroding the Constitution’s Seventh Amendment protections and to warn of the Court’s perilous destabilization of its own institutional reputation.”
  • “Over the past decade,” states Whitehouse, “a predictable conservative majority of the Supreme Court has handed down an accommodating string of 5-4 decisions closing off ordinary citizens’ pathways to the courtroom. Corporate victories at the Supreme Court have undermined civil litigants’ constitutional right to have their claims heard before a jury of their peers, and have whittled to a nub the protective role courts and the jury system were designed to play in our society. Such victories have allowed corporations to steer plaintiffs out of courtrooms and into arbitration, where the odds can be stacked in favor of big business. The Court’s recent arbitration decisions regarding the [FAA], aggrandizing its reach and undermining the original purpose of the Seventh Amendment, are an example.”
  • “[T]his grant of certiorari has the same seeming inevitability as those 5-4 decisions in cases preceding it. Accordingly, amicus fears that the outcome of this case may be preordained—not by the FAA’s plain language, but instead by the trajectory of the recent pattern of 5-4 partisan decisions (decisions in which the Court divides 5-4 with the Republican-appointed majority voting as a bloc). With numbingly predictable inevitability, these cases seem to be won by the ‘more powerful and wealthy’ corporate citizens.”
  • Whitehouse’s legal arguments surrounded two key points in urging the Court to back the First Circuit: “A clear policy preference has emerged for denying citizens their day in court,” and the Court “compromises its legitimacy when it jettisons neutral principles to reach a desired outcome.”
  1. Historians
  • The amicus brief was prepared on behalf “scholars of American labor and legal history [who] have a professional interest in accurate and valid inferences from the historical record”: Shane Hamilton, University of York; Jon Huibregtse, Framingham State University; James Gray Pope, Rutgers Law School; Imre Szalai, Loyola University New Orleans College of Law; Paul Taillon, University of Auckland; and Ahmed White, University of Colorado School of Law.
  • By operation of the ejusdem generis canon, which indicates that a statutory provision should be interpreted in accordance with the words nearby—“of the same kind”–the FAA exemption’s residual clause (“any other class of workers”) does not cover only common law employees in the wake of the statute’s enumeration of railroad workers and seamen. If Congress had intended the FAA exemption to cover only common-law employees, as New Prime now reads it, Congress would have disrupted the statutory dispute resolution schemes for “seamen” and “railroad employees” that it had wanted to avoid unsettling.
  • Relying on more than three dozen agency determinations, the brief notes that the Transportation Act covered railroad workers who would not have counted as employees under the common law of agency. Similarly, shipping arbitration “covered ‘any question whatsoever’ in a seaman’s dispute, including those that did not turn on whether the seaman was anyone’s ‘employee’ under the common law of agency.”
  • The FAA would have disrupted the Transportation Act had it only exempted common-law employees. The theory appears to be that the FAA Sec. 1 exemption applies to independent contractors, which the brief barely mentions, though it notes that independent contractors were covered for railway workers disputes under the Transportation Act of 1920 and seamen disputes under the Shipping Commissioners Act of 1872.
  1. Constitutional Accountability Center
  • The Washington, D.C., think tank and public interest law firm, devoted to a progressive interpretation of the Constitution’s text and history, is concerned with “ensuring meaningful access to the courts, in accordance with constitutional text, history, and values.” Heavily citing numerous dictionary definitions, the Center argues that New Prime’s argument badly misinterprets the view of the definition of employees when the FAA was passed. The Center backs affirming the First Circuit interpretation.
  • When Congress enacted the FAA, “employment” was a broad and general term that did not connote a master-servant relationship. Dictionaries of the era, however, defined the word “employment” by consistently giving it a broad meaning—one that encompassed paying another person for his or her work, whether or not the common-law criteria for a master-servant relationship were satisfied. The word “employee” gradually influenced, and limited, the meaning of the term employment, but only well after the FAA was enacted.
  1. Massachusetts, et al.
  • Fourteen states and the District of Columbia filed an amicus brief because they state that they enforce laws that protect the public interest, including those that set fair labor standards and promote the health and safety of all working people. Employees who are misclassified as independent contractors are often denied many basic workplace protections and benefits that they are entitled to receive—and employers who fail to properly classify and pay their workers gain an unfair competitive advantage. The states and the District of Columbia “have an interest in seeing that transportation sector workers such as Respondent Dominic Oliveira get their day in court, as Congress intended.”
  • Because states have limited resources, they rely on individual employees to supplement the efforts of attorneys general through private enforcement actions. “And many transportation companies engage in exploitative labor practices while at the same time using mandatory arbitration agreements with unreasonable forum selection clauses to attempt to prevent their misclassified drivers from pursuing otherwise available legal remedies.”
  • The FAA Sec. 1 language of the transportation workers’ exemption excludes interstate truck drivers from the FAA’s scope, regardless of whether they are employees or independent owner-operators. This conclusion becomes especially clear in light of the history surrounding Congress’s regulation of leases between independent truck drivers and authorized motor carriers.
  • Both of New Prime’s arguments are foreclosed by the FAA’s plain language, read in its proper historical context.
  1. Employment Law Scholars
  • The amicus brief signers are 35 law professors who have taught and written about employment law. They submit this brief because they believe that the FAA should be construed consistent with how all other statutes and related case law treat issues of worker status.
  • Petitioner New Prime and its amicus supporters ask the Court to interpret contracts of employment as used in the FAA based solely on the labels used in particular contracts, drawing distinctions between independent contractors and employees where there is no sound basis to do so.
  • “Allowing worker status to be decided by contract would set the FAA apart from every other federal statute governing workers. It would lead to inconsistency and uncertainty in the workplace because worker status would vary based on contract or the label chosen for each worker.” In New Prime, it could jeopardize the Fair Labor Standards Act’s mission that “prevent[s] parties from contracting away employees’ rights to minimum wages and overtime compensation,” the brief notes, adding that the Court “must not, through the FAA, endorse this type of race to the bottom.”
  • Many federal and state statutory schemes do not distinguish between common law employees and independent contractors.
  • The reality of the working relationship, not the face of the contract, determines workers status under federal employment statutes.
  1. Owner-Operator Independent Drivers Association Inc.
  • The 45-year-old Grain Valley, Mo.-based association submitted its amicus brief to inform the court that owner-operator truck drivers are a class of workers engaged in interstate commerce, and how their lease agreements with motor carriers, such as petitioner New Prime, are contracts of employment as set out in the FAA Sec. 1 exemption.
  • The amicus brief is filed by the largest international trade association representing the interests of independent owner-operators, small-business motor carriers, and professional drivers. The association notes that the question of whether the contracts of owner-operators are subject to the FAA will determine whether owner-operators will continue to have any meaningful opportunity to protect their small businesses from the type of predatory behavior described in defendant Oliveira’s brief. “Especially important,” the association notes, “is the right to bring an action in federal court for damages and injunctive relief specifically granted to owner-operators by Congress in 1995.”
  • Congress looked to two factors when it formed FAA Sec. 1’s scope: “the maintenance of a smooth operating transportation system and Congressional concerns for enacting specific regulations governing the contracts of transportation workers.” The legislative and regulatory history demonstrates that motor carrier/owner-operator contracts are among those Congress exempted from FAA application by Sec. 1 to achieve the goals in the statute’s adoption: The “provision of different procedures and forums to resolve disputes under those contracts demonstrate precisely the type of contract for employment of persons engaged in interstate commerce that Congress intended to exempt from the FAA.”
  1. International Brotherhood of Teamsters, National Employment Law Project Inc., Economic Policy Institute, and National Employment Lawyers Association
  • Like AAJ and the state amicus briefs, the four-party amicus brief also is concerned about the misclassification of independent contractors by employers, which, among other things, cuts off employers’ responsibility for taxes and liability on behalf of and to their workers. The brief is concerned that a ruling in favor of petitioner New Prime would create incentives for more companies to misclassify their employees as independent contractors in order to evade worker protections.
  • The interest in this case by the amicus filers—a big union, an employment lawyers’ association that focuses on plaintiffs’ representation; an employees’ advocacy research organization, and an economics policy think tank–is to ensure that drivers involved in interstate commerce, including those classified as independent contractors, are afforded the FAA Sec. 1 exemption granted to contracts of employment in the transportation industry.
  • The brief also states that Prime’s errant suggestion that employment relationships under the FAA should be identified by the terms of the contract alone may affect misclassification analysis under other statutes.
  • Truck drivers, like respondent Oliveira, “are frequently misclassified by their employers as independent contractors. This treatment excludes drivers from basic labor and employment protections like the minimum wage, health and safety, and discrimination protections, to name a few.”
  • The brief says that the Supreme Court doesn’t need to determine whether Oliveira was misclassified by New Prime, “because he and the company entered into a contract of employment that should be exempt under the plain language of the Federal Arbitration Act.”
  • Alternatively, the brief argues, if the Court decides that the employee versus independent contractor relationship must be decided in order to determine FAA applicability, “it should take into account the independent contractor misclassification problems endemic in the trucking industry, the impacts on workers, other employers, and state budget and tax coffers, and on employers’ economic incentives to misclassify more drivers that will result.”
  • And if the Court finds that the contract-of-employment analysis requires a determination of whether a worker is an independent contractor, that determination must consider all incidents of the relationship and not be limited to the unilaterally imposed terms of the contract.
  • The FAA’s plain text shows that the Court should find that truckers’ independent contractor arrangements are “contracts of employment” and exempt from the FAA’s coverage. The brief emphasizes the policy consequences of a holding to the contrary.
  • Independent contractor misclassification and the unlawful and exploitative working conditions it engenders are rampant across the economy, but particularly prominent in the trucking sector.
  • Bad-actor employers misclassify works in attempts to avoid tax and other liability, imposing significant societal costs on the public, law-abiding employers, and workers.
  1. Statutory Construction Scholars
  • The amicus brief was written on behalf of 14 law school professors engaged in the teaching and study of statutory construction principles. They believe that a “shared commitment” to certain standards of analytical care “leads to only one conclusion in this case–that application of key canons of statutory construction” to the FAA contracts-of-employment language “applies to all transportation workers without exclusion of workers who are deemed to be independent contractors, and without the legally protected status of “employees.”
  • “The First Circuit’s opinion in Oliveira v. New Prime Inc., reflects a well-reasoned, thoughtful approach to statutory construction. Petitioner attempts to upend that decision and contorts the canons of statutory construction beyond their reasonable parameters in a miscarriage of justice.”
  • The petitioner’s conclusion that the FAA’s contracts-of-employment statutory exception is limited to only those with the legal status of “employees” is not sound.
  • First, the words in statutes are read in light of their ordinary, plain meaning. Those words, the brief notes, “are understood from the perspective of what was meant when they were drafted.” [Emphasis is in the brief.] The petitioner’s argument, “which rests on modern dictionary definitions instead of inquiring into the terms’ meaning at the time the FAA was enacted, fails to comply with those canons of statutory construction and should be disregarded.”
  • The ejusdem generis canon (see above) does not support limiting contracts of employment to employees.
  • Reading the residual exclusion of the FAA’s Sec. 1 to include all transportation workers does not negate FAA Sec. 2 language, which must be read independently because it has a different substantive mandate.

Steve Viscelli, et al.

  • Steve Viscelli is a University of Pennsylvania sociologist who studies work, labor markets, and public policy related to freight transportation, automation and energy. He submitted the brief to provide a better picture of the economic incentives at work in the trucking industry. He provides an analysis of trucking industry’s employment evolution to a “Lease-Operator” model from owner-operators in urging the Court to avoid requiring arbitration to settle employment disputes in the industry.
  • Viscelli is joined by six current or former owner-operators or Lease-Operator truck drivers, whose situations are used as examples in the brief. Also joining the brief as amicus parties is two nonprofits, the Wage Justice Center, a Los Angeles advocacy group for economic justice and fair pay, and REAL Women in Trucking Inc., a trade group that advocates for better working conditions (see http://www.realwomenintrucking.com).
  • The brief explains that New Prime, like other trucking firms, mostly now operates under a relatively new economic structure, the Lease-Operator model. The drivers lease their rigs directly from the company they work for, and often still may owe the company after they are paid for runs. The system often harms employees by misclassifying them as independent contractors.
  • “Because Lease-Operators lease a truck and pay for fuel, maintenance, and insurance, firms can potentially shift a significant amount of capital and operating costs to them, translating into much lower labor costs per unit of work. And, though Lease-Operators are often nominally free to choose what loads they haul, they are generally under greater pressure than employees to accept whatever work is offered to them and to spend more days working because they need to work many more hours per day and days per year to meet fixed expenses and then earn take-home pay at levels even close to what they would earn as company drivers.”
  • The FAA Sec. 1 exclusion prohibits courts from applying the statute to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The brief says that the Court should include the employment arrangements of drivers like respondent OIiveira, who are misclassified by their employers within the definition of contracts of employment.
  • “Workers who must arbitrate their claims are 59% less likely to win than those who take their case to federal court and 38% less likely to win than workers litigating in state courts. The median award in mandatory arbitration is 21% of the median award in the federal courts and 43% of the median award in the state courts. [Citations omitted.] . . . Employers who misclassify employees stand to gain significantly by using forced arbitration to resolve disputes. This Court should not read the FAA in a way that allows them to require arbitration of disputes about the nature of employment in the industry.”

Higgins was a 2018 CPR Institute summer intern and is a student at Northeastern University School of Law. Bleemer edits Alternatives to the High Cost of Litigation, published by the CPR Institute with John Wiley & Sons (see http://www.cpradr.org/news-publications/alternatives and altnewsletter.com).

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