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January 15, 2019

Supreme Court Decides New Prime Inc. v. Oliveira

On January 15, 2019, the U.S. Supreme Court decided New Prime Inc. v. Oliveira, holding in an 8-0 opinion that, on a motion to compel arbitration, the court itself must determine whether the exclusion of § 1 of the Federal Arbitration Act (FAA) for “contracts of employment” of certain transportation workers applies before ordering arbitration. Applying that holding to this case, the Court further held that the term “contracts of employment” is broad enough to cover independent-contractor relationships.

Dominic Oliveira was a driver for interstate trucking company New Prime, working under contracts that designated him an “independent contractor” and that required all disputes arising out of the parties’ relationship to be resolved by an arbitrator, including disputes over the scope of the arbitrator’s authority. A dispute arose between the parties regarding whether New Prime appropriately classifies its drivers as independent contractors rather than employees. New Prime sought to compel arbitration, but the district court and the First Circuit denied that request.

The Supreme Court granted review and affirmed. “While a court’s authority under the Arbitration Act to compel arbitration may be considerable,” the Court held, “it isn’t unconditional.” One condition is established by § 1 of the Act, which provides that “nothing” in the FAA may be used to compel arbitration of disputes involving the “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. “Given the statute’s terms and sequencing,” the Court held that “a court should decide for itself whether § 1’s ‘contracts of employment’ exclusion applies before ordering arbitration.” This is true even where the parties’ agreement delegates authority to an arbitrator to decide whether the parties’ dispute is subject to arbitration because “[a] delegation clause is merely a specialized type of arbitration agreement” and can be enforced “only if the contract in which the clause appears doesn’t trigger § 1’s ‘contracts of employment’ exception.”

Turning to the case before it, the Court held that the term “contracts of employment” is broad enough to encompass independent-contractor relationships, not just employment relationships.  Looking to the ordinary meaning of the language of the statute at the time it was enacted, the Court remarked that the “modern intuition” to limit “contracts of employment” to those between employers and employees “isn’t easily squared with evidence of the term’s meaning at the time of the Act’s adoption in 1925.” Looking to popular legal dictionaries of the time, the Court noted the absence of a formal definition for “contracts of employment” and also the broad construction afforded to the word “employment.” The Court also looked to its 20th-century cases and a variety of state and federal statutes using the phrase “to describe work agreements involving independent contractors.” Based on these authorities and others, the Court reasoned that, when the statute was enacted, “a ‘contract of employment’ meant nothing more than an agreement to perform work.”

The Court therefore affirmed the First Circuit’s determination that it lacked authority to order arbitration because Oliveira’s contracts with New Prime fall within § 1’s exclusion.

Justice Gorsuch wrote the opinion of the Court. Justice Ginsburg filed a concurring opinion. Justice Kavanaugh took no part in the consideration of the decision of the case.

Download Opinion of the Court.

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