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Maritime Update: U.S. Supreme Court Affirms That Court Cannot Enforce Arbitration Clause in “Contracts of Employment”

Bill Schwartz - 

On January 15, 2019, the U.S. Supreme Court issued its decision in New Prime, Inc. v. Oliveira, 2019 WL 189342, 2019 U.S. LEXIS 724 (Jan. 15, 2019). Here, the Court addressed two issues: (1) whether a court or arbitrator should determine if a §1 exclusion to the FAA applies prior to compelling arbitration; and (2) whether Oliveira’s work agreement with New Prime qualifies under the FAA as a “contract of employment,” excepting the court’s statutory authority to enforce arbitration under §§ 3 and 4 of the Act.

New Prime Inc. is an interstate trucking company, and respondent Dominic Oliveira is one of its drivers. Mr. Oliveira worked under an operating agreement that called him an independent contractor and contained a mandatory arbitration provision. When Mr. Oliveira filed a class action alleging that New Prime denied its drivers lawful wages, New Prime asked the court to invoke its statutory authority under the Federal Arbitration Act to compel arbitration. Mr. Oliveira countered that the court lacked authority because §1 of the Act excepts from coverage disputes involving “contracts of employment” of certain transportation workers.

In a unanimous decision, the Court held that (1) a court should first determine whether the exclusion applies; and (2) Oliveira’s agreement to perform work for New Prime fell within the FAA’s “contract of employment” exception under §1.

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.”

As part of its review of statutory interpretation, they looked back to when the law was enacted in 1925.  The court held:

“….evidence remains that, as dominantly understood in 1925, a ‘contract of employment’ did not necessarily imply the existence of an employer-employee relationship. New Prime’s argument that early 20th-century courts sometimes used the phrase ‘contracts of employment’ to describe what are recognized today as agreements between employers and employees does nothing to negate the possibility that the term also embraced agreements by independent contractors to perform work. And its effort to explain away the statute’s suggestive use of the term “worker” by noting that the neighboring terms “seamen” and “railroad employees” included only employees in 1925 rests on a precarious premise. The evidence suggests that even “seamen” and “railroad employees” could be independent contractors at the time the Arbitration Act passed.”

The decision thus may have implications in maritime employment contracts as §1 also excludes from the application of the FAA “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” While not all maritime workers are classified as “seamen”, many maritime workers certainly contract to perform work indicative of being engaged in foreign or interstate commerce. This possibility necessarily raises the issue of whether this decision will apply to seamen and other workers who fall within the exclusion and are borrowed employees. Given the Court’s broad interpretation of “contracts of employment,” the potential arises for the §1 arbitration exception of the FAA to be imputed to joint employers of borrowed employees, even where a mandatory arbitration clause exists within the respective agreement.

Meaning for you: It may bar arbitration clauses in such contracts of employment.

If you have any questions regarding this maritime matter, please contact Bill Schwartz at (504) 569-2900 or wschwartz@bhbmlaw.com.


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