In a blow to the transportation industry, last week, the U.S. Supreme Court ruled that the trucking company, New Prime Inc., cannot compel arbitration in a class action alleging it failed to pay independent contractor driver apprentices minimum wage.  In New Prime Inc. v. Oliveira, the Court held that transportation workers engaged in interstate commerce, including those classified as independent contractors, are exempt from the Federal Arbitration Act (the “FAA”).  Justice Neil Gorsuch wrote the Court’s 8-0 opinion (Justice Brett Kavanaugh was recused from the case). 

Section 1 of the FAA exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  In New Prime, the Court addressed two questions: (1) whether a dispute over the applicability of the Section 1 exemption must be resolved by an arbitrator based on a valid delegation clause or by a court; and (2) whether the Section 1 exemption covers independent contractor agreements.  On the first question, the Court held that a court should decide whether the Section 1 exemption applies before sending a case to arbitration.  “The parties’ private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the act authorizes a court to stay litigation and send the parties to an arbitral forum.”

In addressing the second question, the Court first assessed the meaning of the term “contracts of employment” in the FAA noting that, at the time the FAA was enacted in 1925, a “’contract of employment’ usually meant nothing more than an agreement to perform work.“  “As a result, most people then would have understood Section 1 to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.”  The Court refused to explicitly draw the line between employees and independent contractors in the transportation sector for the purposes of the Section 1 exemption, instead ruling that, in 1925, a contract of employment did not necessarily imply the existence of an employer-employee or master-servant relationship.

So, what does the New Prime decision mean for transportation industry employers?  Given the industry’s common practice of hiring individuals as independent contractors rather than employees, New Prime could have broad implications.  However, it does not necessarily sound a death knell for arbitration provisions in all transportation industry independent contractor agreements, as these arbitration agreements may still be enforceable as a matter of state law.   In addition, since Section 1 of the FAA only applies to workers in foreign or interstate commerce, intrastate workers are not affected.  Regardless, transportation industry employers should review their independent contractor agreements to ensure that any arbitration provisions will hold up in light of New Prime.