In a decision sure to send shock waves throughout the Mortgage Field Services Industry, the US Supreme Court (SCOTUS) ruled that Wage and Hour Claims are exempted from arbitration. On January 15, 2019, the U.S. Supreme Court issued a unanimous decision in New Prime Inc. v. Oliveira, a case concerning the enforceability of arbitration agreements. Specifically, SCOTUS applied the Federal Arbitration Act’s Transportation Workers Exclusion to Independent Contractors. The ramifications are monumental in that first, the New Prime case is almost identical to the framework of Dynamex — a trucker claiming to be an employee and the implication of interstate commerce.
Oliveira filed a putative class action against New Prime in federal court in Massachusetts alleging failure to pay truck drivers minimum wage pursuant to the Fair Labor Standards Act and Missouri and Maine labor laws. New Prime filed a motion to compel arbitration under Section 4 of the Federal Arbitration Act (“FAA”). In response, Oliveira argued that New Prime cannot compel arbitration because Section 1 of the FAA excludes “contracts of employment of . . . seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” commonly known as the transportation workers exclusion.
- Should a court determine whether a Section 1 exclusion to the FAA applies before ordering arbitration where the parties’ contract contains a delegation clause?
- Does the transportation worker exclusion apply to independent contractors as well as employees?
The Court answered both inquiries in the affirmative. On the question of arbitrability, the Court reasoned that courts do not have limitless power to compel arbitration of all private contracts. Rather, Section 2 of the FAA states that such power is limited to arbitration agreements involving commerce or maritime transactions, which is informed by Section 1. Thus, in order to properly assert its power to compel arbitration, a court must first determine whether the FAA applies to the contract at issue. The Court rejected the proposition that courts are barred from making this threshold determination when the parties’ contract contains a delegation clause, emphasizing that a delegation clause is “merely a specialized type of arbitration agreement,” enforceable only to the extent that the “involving commerce” requirement under Section 2 of the FAA is satisfied and the exclusion under Section 1 is inapplicable.
On the merits of the New Prime’s Section 1 challenge, the Court looked to the meaning of “contracts of employment” as that phrase was used at the time the FAA was adopted in 1925. The Court sought to avoid ascribing new meaning to “old statutory terms” in a way that would effectively and improperly amend legislation. The Court looked at dictionary entries from the time for this phrase and, in finding none, concluded that the phrase was not a term of art and was construed broadly to cover any “work,” not just work in a formal employer-employee relationship. The Court found further support for this conclusion in early twentieth-century case law and statutes that construe this phrase to cover work agreements involving independent contractors. The Court also noted that Section 1’s statutory text also includes—in close proximity to the phrase “contract of employment”—the term “workers” (i.e., “workers engaged in interstate commerce”). Finally, the Court refused to stray from the statutory text in favor of indiscriminately enforcing the policy behind the FAA, concluding that even a liberal federal policy favoring arbitration agreements has limits, and that courts must respect such limits.