By Sara Higgins
For the second year in a row, the Supreme Court is kicking off its new term with a focus on arbitration.
This year’s case, New Prime, Inc. v. Oliveira, No. 17-340—which will be argued tomorrow, the Court’s third day of arguments in the new term—focuses on whether the Federal Arbitration Act Sec. 1 exemption language from the act’s application for certain “contracts of employment” encompasses independent contractor agreements.
The case—an appeal from Oliveira v. New Prime Inc., 857 F.3d 7 (1st Cir. 2017)(available at https://bit.ly/2tEzlkr)—is potentially significant for many workers, though it isn’t attracting the attention of the 2017-2018 term’s kickoff argument, Epic Systems v. Lewis. That case, decided in May, strongly backed the use of mandatory arbitration in conjunction with waivers of class arbitration and litigation processes in workplace disputes. See CPR Speaks blog coverage at https://bit.ly/2xPvFMk; see analysis at Russ Bleemer, “While Plaintiffs’ Lawyers Strategize, the Supreme Court’s Strong Backing Likely Will Grow Mandatory Processes,” 36 Alternatives 97 (July/August 2018)(available at https://bit.ly/2QsxLJ5).
The Court is still one justice short of the longstanding nine-judge bench, as the Senate continues its fight over the nomination of D.C. Circuit Court Judge Brett M. Kavanaugh to succeed retired Justice Anthony Kennedy.
So a 4-4 outcome looms. The Court could order a rehearing after its decision to include Kavanaugh or another new justice if a party asks for it. See Court Rule 44, available at https://bit.ly/2NE6ouV.
Despite a shift to a “gig” economy for many workers, the number of independent contractors the New Prime case focuses on actually shrunk since about a decade ago, according to a report earlier this year by the U.S. Department of Labor’s Bureau of Labor Statistics, to 6.9% of total U.S. employment in 2017, from 7.4% in 2005.
But the more than 10 million workers in these arrangements often see mandatory arbitration in their work agreements, as do millions more in so-called contingent employment situations which, depending on their agreements, may be covered by whatever the Court decides in New Prime.
The Court’s FAA backing in general employment cases in Epic Systems points to a similar decision in New Prime. But groups backing individual independent contractors are drawing a contrast, and argue that these workers should be treated different and not compelled to arbitrate against the companies with which they contract.
The case is summarized at Mark Kantor, “U.S. Supreme Court Grants Cert to Decide “Who Decides” “Independent Contractor” Employment Arbitration Case,” CPR Speaks blog (available at https://bit.ly/2RpwP9E), and Ginsey Varghese, “Supreme Court Will Decide Independent Contractor Arbitration Case,” 36 Alternatives 59 (April 2018)(available at https://bit.ly/2xW5MdN).
Below are highlights of amicus views filed in the case that back the petitioner, trucking company New Prime, along with statements about the filing party’s interest in the case. The petitioners’ amicus supporters were required to file first. In a CPR Speaks post to follow shortly, we will examine the views of the respondent employees’ friend-of-the-Court supporters.
In support of petitioner New Prime seeking reversal:
- American Trucking Associations, Inc.
- American Trucking Associations is an Arlington, Va.-based group that represents the trucking industry with members including companies and state organizations. ATA regularly represents “the common interests of the trucking industry in courts.” Many of its member companies contract with owner-operators who may enter into agreements to arbitrate disputes that arise during the course of their business relationship.
- The amicus brief says that the First Circuit decision upends the expectation that the FAA will require motor carriers and their independent contractors to arbitrate any disputes that arise between them under their agreements, including in some cases the question whether a given dispute is arbitrable. Even where both sides agreed to arbitrate, “[t]his sweeping, idiosyncratic holding . . . would mean that owner-operators and carriers . . . could never expect those agreements to be enforced under the FAA. . . .” The decision undermines the federal policy favoring arbitration, to the detriment of motor carriers and independent owner-operators.
- The U.S. Chamber of Commerce and the Society for Human Resource Management
- The Chamber regularly files amicus curiae briefs in business cases, and has emphasized an anti-class action stance that incorporates a strong endorsement for individual arbitration in many Supreme Court and federal appellate court cases. The Chamber notes that its members and affiliates regularly rely on arbitration agreements in their contractual relationships. The SHRM, based in Alexandria, Va., represents 300,000 human resources professionals world-wide.
- The brief says that independent contractors are not covered by the FAA Sec. 1 exemption from arbitration for “contracts of employment.” The brief says that participants on both sides in the “rapidly expanding” independent contractor market “rely upon the enforceability of agreements between businesses and independent contractors.”
- If the decision below is allowed to stand, the brief says, “untold thousands of arbitration agreements would be called into question.”
- Before the First Circuit decision, courts uniformly understood that FAA Sec. 1 “’contracts of employment’ means what it says: a contract between an employer and an employee—not an agreement with an independent contractor to perform work.”
- The panel majority also failed to recognize that its interpretation is inconsistent with the context in which the Sec. 1 exemption was enacted—against the backdrop of other federal laws that recognize the long-established distinction between employees and independent contractors.
- Cato Institute
- The conservative Washington, D.C., think tank focuses on free enterprise and often speaks out on the freedom to contract: “This case is important to Cato because it concerns the freedom of individuals and businesses to structure their economic relations through contractual agreement.”
- Cato takes an historical approach to criticizing the appellate court decision and urging reversal. At the time of the FAA’s 1925 enactment, Cato wrote, contracts of employment referred to traditional employer–employee relationships, not independent contractor arrangements. Courts embraced the same distinction in applying the common law, as did the legal dictionaries and treatises of the time. The FAA’s text is plain: only certain agreements establishing traditional employer– employee relationships are exempt from the FAA’s scope—that is, transportation workers like the seamen and railway employees the statute names.
- Statutory history, including contemporaneous state laws, confirms that the FAA’s contracts-of-employment exemption is limited to traditional employer– employee relationships, and doesn’t include independent contractors.
- New England Legal Foundation
- NELF is a conservative free-market advocacy group in Boston.
- It makes a statutory construction argument to restrict the FAA Sec. 1 exclusion from application for transportation workers to the enumerated seamen and railroad employees, and the phrase “any other class of workers” is narrowed by the “ejusdem generis” rule, meaning “of the same kind.” This means that undefined statutory terms should be construed consistently with their immediate context, not in isolation from that context.
- This also means that statutory terms should be interpreted consistently with the statute’s overarching purpose—here, the FAA’s purpose to enforce arbitration agreements according to their terms. This purpose, coupled with the traditional statutory construction rules, mandates a narrow interpretation of the exemption contained within Section 1 of the FAA.
- The NELF argues that, based on the immediate context of the phrase “contracts of employment” in 9 U.S.C. Sec. 1, the FAA’s purpose, and a plausible historical explanation for the exemption, “contracts of employment,” must define an employer-employee relationship, not an independent contractor relationship.
- When interpreted properly, in its immediate context, “contracts of employment” modifies “seamen” and “railway employees,” which are the two prominent classes of transportation employees in the statute, not independent contractors.
- The FAA’s overarching purpose counsels in favor of enforcing, not exempting, arbitration agreements under the FAA.
- The FAA’s exemption for seamen and railroad workers allowed those employees to sue employers for work-related injuries under two contemporaneous statutes—“a liberalized tort remedy.” Notes the NELF, “Since independent contractors are not covered by the [those acts], Congress would have no reason to exempt them from the FAA’s scope.”
Customized Logistics and Delivery Association
- CLDA is a nonprofit Washington trade association that advocates for the interests of delivery companies. New Prime is of significant interest to CLDA because of the common industry practice of using independent owner-operators to transport cargo. These independent owner-operators are crucial to the structure of many of the carriers’ businesses, as they often provide the equipment and services carriers need to meet the changing demands of their businesses. Carriers frequently rely on arbitration provisions in their contracts with owner-operators to ensure that both parties have an efficient and cost-effective means through which they can resolve their disputes.
- The CLDA relies on a general argument about arbitration’s effectiveness in urging the nation’s top Court to reverse.
- The First Circuit decision, which applied an overly expansive interpretation of the FAA exception, would render unenforceable the arbitration agreements used by the largest segment of the CLDA membership—small operators with one to 50 operators and annual revenue below $1 million. That would leave both the carriers and owner-operators subject to the threat of lengthy and costly litigation.
- The First Circuit decision “not only conflicts with the holdings of other federal courts, it directly conflicts” with the FAA’s central goal, “to ensure that arbitration agreements between contracting parties are enforceable by the parties, thereby safeguarding each party’s access to an efficient and cost-effective alternative to litigation.”
- “In order to achieve these goals, the determination of ‘whether a contract qualifies as a ‘contract of employment’’ within the meaning of Section 1 of the FAA “requires a categorical approach that focuses solely on the words of the contract.” In re Swift Transportation Co. Inc., 830 F.3d 913, 920 (9th Cir. 2016)(Ikuta, J., dissenting).
- The CLDA states that “[c]ourts should not be allowed to make factual determinations regarding the employment relationship of the contracting parties for two reasons. First, to do so deprives the parties of the benefits of arbitration by forcing the parties to expend valuable resources in a preliminary court battle. Second, a threshold factual determination means that the parties must essentially litigate the merits of the case. This in turn creates uncertainty as to the enforceability of the contract at execution.”
The author was a 2018 CPR Institute summer intern and is a student at Northeastern University School of Law. Alternatives editor Russ Bleemer assisted with research.