Supreme Court’s Decision Arbitration Agreements with Owner Operator Changes the Game
On January 15, 2019, the United States Supreme Court issued an opinion that could have a far-reaching impact upon independent owner operators and the fleets that rely upon them to move freight for their customers. The Court in New Prime, Inc. v. Oliveira, 139 S.Ct. 532 (2019) ruled that an exclusion in Section 1 of the Federal Arbitration Act (“FAA”) removed employee-employer contracts and contracts involving independent owner operators from the FAA’s purview.
Oliveira, like many independent owner operators, had an independent contractor agreement with New Prime, Inc. to work as an over-the-road truck driver. The agreement between Oliveira and New Prime classified Oliveira as an independent contractor and included a mandatory arbitration provision requiring all disputes arising out of the parties’ relationship to be resolved by an arbitrator. Id. at 536. Oliveira was part of a class action lawsuit in which he argued that New Prime treated its independent contractors as employees and denied the drivers lawful wages in violation of the Fair Labor Standards Act. Id. Oliveira argued that Section 1 of the FAA contained an exclusion removing “contractors of employment of … workers engaged in interstate commerce” from the FAA’s purview. New Prime argued that “contracts of employment” only applied to classic employee-employer relationships, not the independent contractor arrangement it had with Oliveira.
Writing for a unanimous Court before Justice Kavanaugh took the bench, Justice Gorsuch found that even when the FAA was drafted in 1925, Congress’ deliberate usage of the words “contracts of employment” and “workers” contemplated the inclusion of independent contractor arrangements. Id. at 540-41. Even independent contractor agreements for individuals “engaged in interstate commerce” fell under Section 1’s exclusion. Therefore, courts could not compel arbitration for disputes arising between motor carriers such as New Prime and independent contractor and owner operators such as Oliveira. Id. at 543-44.
What will come out of this decision? First, the Court held that Section 1’s exclusion applied even assuming Oliveira was an independent contractor, even though dicta in the opinion appeared to express misgivings as to whether Oliveira actually was an independent contractor. For instance, the Court wrote, “[A]t least on paper, Mr. Oliveira isn’t an employee.” Id. at 536. Oliveira, perhaps sensing the groundswell against New Prime in the Court’s demeanor, argued that it did not matter if the Court viewed him as an employee or an independent contractor: Section 1’s exclusion still applied. The Court side-stepped completely the issue of whether Oliveira was an employee or independent contractor. After all, that issue was not the reason the Court granted certiorari. Although the Court would not pass judgment on whether Oliveira qualified as an independent contractor, Justice Gorsuch’s undertones seemed to foreshadow his own doubt.
More importantly, the fallout from the New Prime decision could mean that more disputes between owner operators and motor carriers who use them will find their way into the court system. When an owner operator threaten legal action against a motor carrier, the carrier faces more uncertainty without an arbitration provision in the independent contractor agreement. Motor carriers will no longer be able to compel arbitration in these disputes, allowing them to matriculate through the court system until resolution – either through settlement or a decision on the merits. Will this decision cause motor carriers to reevaluate the merits of an owner-operator model? Will owner operators seize the upper hand against motor carriers, asking for better terms, better rates, and better benefits? Motor carriers may need to be proactive, offering better terms to independent owner operators as a way to avoid the uncertainty of litigating their disputes in the backlogged court system as opposed to the sterile arbitration environment afforded under the FAA. Better benefits and more advantageous contract terms for owner operators might help address the driver shortage in the long term. But, for the short term, the New Prime decision is a blow to motor carriers who rely upon owner operators as a part of their business model.
Blair J. Cash is a Partner in the Alpharetta office of Lueder, Larkin & Hunter where his practice focuses on commercial and common carrier liability, automobile liability, premises liability, dram shop liability, and general civil defense litigation. He can be reached at bcash@luederlaw.com