EMPLOYERS MAY NOT BE ABLE TO REQUIRE MANDATORY ARBITRATION OF LEGAL CLAIMS BY TRANSPORTATION WORKERS

The Federal Arbitration Act is a federal law that encourages the arbitration of legal claims.  Fifty-five percent of American workers are covered by mandatory arbitration provisions in their employment contracts with their employers, according to published reports.  Many of these mandatory arbitration provisions preclude an employee from bringing a class or collective action and require all legal claims to be brought individually in arbitration rather than in court.  The arbitration process is quicker and cheaper than court litigation, and prevents "runaway" juries.

The current case involves whether the Federal Arbitration Act (FAA) can apply to transportation workers, as there is an exclusion in the FAA for "contracts of employment" of certain transportation workers.  In a January ruling of the U.S. Supreme Court, the issue was whether this exclusion applied to workers who were independent contractors so that the exclusion for "contracts of employment" referred only to contracts that established an employer-employee relationship, and not to contracts with independent contractors.  New Prime, Inc. v. Oliveira, No. 17-340 (U.S., 1/15/19).

The Supreme Court ruled that when Congress enacted the FAA in 1925, the term "contracts of employment" referred to agreements to perform work, whether to be performed by employees or independent contractors.  Thus, under the exclusion from the FAA of certain transportation workers, the Court lacked authority under the FAA to order arbitration. 

Editor's Note: The New Prime Supreme Court ruling does not affect employers of employees or independent contractors other than certain transportation workers in interstate commerce.  However, trucking companies and related transportation employers will have to find other ways besides the FAA to enforce mandatory arbitration agreements.  Most states have state arbitration laws that may be applicable, although a few states exempt arbitration agreements in employment contracts.  Thus, employers of transportation workers have to rely on state arbitration laws to enforce their mandatory arbitration agreements.  Some have expressed the view that other theories might be used to counter mandatory arbitration agreements of transportation workers in interstate commerce.