Rare Win for Workers in Supreme Court Arbitration Case

Author: David B. Weisenfeld, XpertHR Legal Editor

January 15, 2019

The Supreme Court has handed a rare victory to workers in a case involving a mandatory arbitration provision. In New Prime Inc. v. Oliveira, the Court ruled unanimously that while a court's authority to compel arbitration under the Federal Arbitration Act (FAA) may be considerable, it isn't unconditional and does not extend to all private employment contracts.

The case involved an arbitration agreement between an interstate trucking company and one of its drivers, Dominic Oliveira, stating that an arbitrator should resolve any disputes arising out of the parties' work relationship. When Oliveira filed a class action lawsuit claiming the company denied its drivers lawful wages, the company relied on the agreement and sought to compel arbitration.

Section 1 of the FAA carves out an exception for "contracts of employment of workers engaged in foreign or interstate commerce." And while Oliveira unquestionably engaged in interstate commerce, the company claimed the term "contracts of employment" refers only to contracts establishing an employer-employee relationship. Since Oliveira was an independent contractor, the company argued the FAA's arbitration exception does not apply.

But the Supreme Court disagreed. Writing for the Court, Justice Neil Gorsuch said there was nothing to show that a "contract of employment" necessarily signaled a formal employer-employee relationship at the time Congress passed the FAA. Instead, he noted that Congress spoke of workers, a term that everyone agrees easily embraces independent contractors.

While the Court has repeatedly held that Congress adopted the FAA in an effort to establish a broad federal policy favoring arbitration agreements, it found the FAA's language is clear that there are limits. And since the term contract of employment refers to any agreement to perform work, Justice Gorsuch said it is for a court to decide if Oliveira's arbitration agreement with the company falls within Section 1's exception.

The US Chamber of Commerce had urged the Court to rule for the employer, claiming that thousands of arbitration agreements would be called into question if the justices ruled against the business community.