Trucking companies that use owner-operator independent contractors may not be able to rely on arbitration clauses to avoid lawsuits from those drivers in the wake of a new U.S. Supreme Court decision. The court ruled Jan. 15 that Missouri-based trucking company New Prime Inc. (known as Prime) cannot force arbitration in a class action lawsuit alleging it failed to pay independent contractor truck-driver apprentices minimum wage.

In 2015, Dominic Oliveira sued Prime in a class action, alleging that he and other drivers whom the company classified as independent contractors were in reality employees, and thus were underpaid during their onboarding and training periods. Prime argued that the drivers couldn’t sue, because the agreement the contractors signed contains an arbitration clause, saying the drivers agreed not to sue the company but instead submit any such claims to arbitration.

However, the drivers’ attorneys argued that the Federal Arbitration Act does not apply to the “contracts of employment” of transportation workers. The First Circuit Court agreed, finding that the term “workers” under Section 1(a) of the FAA includes not only traditional employees, but also independent contractors.

The Supreme Court affirmed the lower court’s ruling in a unanimous 8-0 decision (Justice Kavanaugh was not appointed before last October’s arguments.)

Justice Gorsuch wrote in the court opinion, “The Federal Arbitration Act requires courts to enforce private arbitration agreements. But like most laws, this one bears its qualifications,” specifically citing a passage that the law may not be use to compel arbitration in disputes involving the “contracts of employment” of certain transportation workers. And that qualification, he explained, had sparked the question, among others: Does the term “contracts of employment” refer only to contracts between employers and employees, or does it also reach contracts with independent contractors?

The court’s decision looked at the meaning of the term “contracts of employment” when the law was written in 1925. “At that time, a ‘contract of employment' usually meant nothing more than an agreement to perform work,” Gorsuch writes. “As a result, most people then would have understood [the wording in the FAA section] to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work… the dictionaries of the era consistently afforded the word ‘employment’ a broad construction, broader than may be often found in dictionaries today. Back then, dictionaries tended to treat ‘employment’ more or less as a synonym for ‘work.’”

Prime General Counsel Steve Crawford told HDT in an email, “It is a disappointing loss. As is evident, the high court held onto principles first laid out nearly 100 years ago. We obviously felt that the court’s ruling should have evolved with the law of business and culture. However, when they can hang on to something tied closer to our founding tenets, they tend to do so. We will return to the First Circuit optimistic and prepared to address these allegations on their merits.”

Industry Reaction

The American Trucking Associations, which filed an amicus brief in the case, told HDT in an email, “ATA is disappointed by today’s decision, which will make it harder for motor carriers and independent owner-operators alike to rely on agreements to resolve their disputes through arbitration. Congress enacted the Federal Arbitration Act to promote arbitration as a fair, cheaper, and more efficient alternative to litigation, and today’s decision deprives the trucking industry of the benefits of that Congressional policy. This will make dispute resolution in the trucking industry more costly than it is in other industries, which in turn will mean unnecessary costs passed on to the supply chain. It will also mean that many small-dollar disputes that commonly arise between owner-operators and motor carriers will go unresolved, because while they could be cost-effectively addressed in arbitration, are not significant enough to justify the expense of litigation.”

On the other hand, the decision was praised by the Teamsters Port Division, which has been active in pushing for "misclassified" owner-operators at the nation’s port facilities to be declared employees. “This is a great victory for all workers in the transportation industry, including employees, legitimate independent contractors, and drivers misclassified as independent contractors who are suffering egregious wage theft,” said Fred Potter, director of the Teamsters Port Division, in a press release. “Although we have consistently challenged employers’ attempts to compel private arbitration to avoid a public legal battle, the U.S. Supreme Court ruling makes it clear that employers cannot and should not require drivers to waive their right to their day in court through binding arbitration agreements.”

The Takeaway for Motor Carriers

“This issue has been litigated for years,” Braden Core, partner with transportation law firm Scopelitis, Garvin, Light, Hanson & Feary, told HDT in an interview. He was present at the oral arguments last October, and his firm predicted the court would rule in Oliveira’s favor.

“Going back now probably a decade, Scoplitis has been advising clients that this is a risk they run in requiring arbitration with their owner-operators,” Core said. “What we now know is that you’re not even going to get to argue that your owner-operators fall outside the exemption. That argument is off the table. The FAA just isn’t going to apply.”

However, he said, the court’s decision does leave a few issues open:

• Carriers may still be able to use state law. “That’s good news, although it raises a number of its own questions, because state law varies,” Core said. “Some states have better arbitration laws than others. So every carrier is going to have to look at their agreements and ask themselves, ‘How do I shake out under state law?’”

• Arbitration agreements may still be an option for contracts with carriers that are not a one-man/one-truck driving operation. During the oral argument, several justices probed whether an owner-operator who did not personally perform services or who operated multiple trucks would be subject to the exemption. The court did not address these issues in its opinion, arguably leaving them open for future litigation.

Core’s advice to fleets? “Any time there’s an opinion like this that affects the industry, it is a good idea for a carrier to take the agreement off the shelf, dust it off and revisit it.”