SCOTUS Agrees to Consider Arbitrability of Independent Contractor Agreements

The United States Supreme Court has granted certiorari in a case involving the arbitrability of independent contractor agreements.  In New Prime Inc. v. Oliveira, No. 17-340, an interstate trucking company, New Prime, recruited new drivers through a paid student apprenticeship program.  A man, Oliveira, completed the program and elected to drive for New Prime as an independent contractor.  New Prime then directed Oliveira to an accounting firm and truck leasing company that were located in the same building as the trucking company’s offices in order to set up a limited liability corporation, Hallmark, and secure a leased big rig.

Next, Oliveira selected a truck, secured about $5,000 worth of trucking supplies on credit, and began hauling loads for New Prime.  Prior to leaving on his first route, Oliveira signed numerous documents on behalf of Hallmark including an Independent Contractor Operating Agreement that contained an arbitration clause.

Later, Oliveira ceased driving for New Prime as an independent contractor and began working for the company as a paid employee.  According to Oliveira, however, his job duties and pay were nearly identical to those when he operated as an independent contractor.  As a result, Oliveira initiated a proposed class action lawsuit against New Prime alleging the interstate trucking company violated the Fair Labor Standards Act and other laws.

In response to Oliveira’s lawsuit, New Prime filed a motion to compel the dispute to arbitration based on the terms of the signed Independent Contractor Operating Agreement.  Oliveira countered by arguing the arbitration agreement did not apply to him because he was not a party to the contract.  He also claimed the Federal Arbitration Act (“FAA”) did not apply to the agreement based on the exemption included in Section 1.  Finally, Oliveira argued the question of arbitrability was one for the courts, not an arbitrator, to decide.

The federal district court found that whether the exemption regarding “contracts of employment” included in Section 1 of the FAA applied to the case at hand was a question for the courts to decide.  In addition, the court determined further discovery was necessary in order to answer that question.  As a result, the district court denied New Prime’s motion to compel arbitration and ordered discovery to be conducted regarding the issue of Oliveira’s employment status.

On appeal, the First Circuit Court of Appeals concluded:

…when confronted with a motion to compel arbitration under § 4 of the FAA, the district court, and not the arbitrator, must decide whether the § 1 exemption applies. Additionally, we hold that transportation-worker agreements that establish or purport to establish independent-contractor relationships are “contracts of employment” within the meaning of the § 1 exemption. Because the contract in this case is within the § 1 exemption, the FAA does not apply, and we consequently lack jurisdiction under 9 U.S.C. § 16(a)(1)(B) — the only conceivable basis for our jurisdiction over this interlocutory appeal. See Int’l Bhd. of Teamsters Local Union No. 50 v. Kienstra Precast, LLC, 702 F.3d 954, 957-58 (7th Cir. 2012). Accordingly, we affirm the district court’s denial of Prime’s motion to compel arbitration, and dismiss the appeal for lack of appellate jurisdiction.

New Prime then filed a petition for certiorari with the Supreme Court of the United States.  According to the interstate trucking company, the questions presented in the case are:

1. Whether a dispute over applicability of the FAA’s Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause.

2. Whether the FAA’s Section 1 exemption, which applies on its face only to “contracts of employment,” is inapplicable to independent contractor agreements.

On February 26^th, the U.S. Supreme Court granted New Prime’s petition.  Oral argument has not yet been placed on the court’s calendar.

Please stay tuned to Disputing for more on future developments in this case!

H/T to Mark Kantor.

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