New Year, New Court, New Prime

By: Esmat Hanano, Spring 2019 IAC Student Intern

Transportation workers recently received some very good news from the Supreme Court of the United States. In a fifteen-page, unanimous opinion by Justice Neil Gorsuch, the Court held that independent contractors working in interstate commerce may not be forced into arbitration. The case arose from an employment dispute between Dominic Oliveira and New Prime, Inc.—Mr. Oliveira’s employer. New Prime’s drivers are hired as independent contractors so that the company does not have to comply with federal labor laws governing formal employment relationships. Mr. Oliveira filed a class-action suit against the company alleging that he was misclassified as a contractor and deserved to receive the rights associated with a formal employment relationship. The Court took the case to resolve two questions: (1) whether an arbitrator, as opposed to a court, gets to decide if an exception to the Federal Arbitration Act (FAA) applies to the parties; and (2) whether the term “contracts of employment” includes independent contractors.

The Court quickly resolved the first question by looking to the history surrounding the enactment of the FAA in 1925. According to Justice Gorsuch, Congress did not want courts categorically enforcing arbitration agreements because that would “unsettle” alternative dispute resolution methods that Congress backed prior to the enactment of the FAA. Rather, Congress limited the applicability of the FAA by including an exception for employment contracts of workers engaged in interstate commerce. Justice Gorsuch uses this history to conclude that courts, and not arbitrators, must first interpret whether an employment contract falls into this exception. Justice Gorsuch reasoned that in order for a court to determine whether a contract’s arbitration clause is enforceable it must know whether the contract is exempt from the FAA’s reach. Justice Gorsuch then resolves the second question by relying on his textualist principles. At the time Congress enacted the FAA, “contracts of employment” was meant to encompass a broad category of workers that included what we now think of as independent contractors. Justice Gorsuch arrives at this conclusion by looking to dictionaries from the era and using the text of § 1 of the FAA to conclude that independent contractors fall under “contracts of employment” as understood at the time of the FAA’s enactment.

This decision follows Justice Brett Kavanaugh’s unanimous opinion in Henry Schein, Inc. v. Archer & White Sales, Inc. which focused on whether courts could decide threshold questions of arbitrability when that question was delegated to the arbitrator in the underlying agreement. There, the Court held that courts had no business ignoring the terms of an agreement when it delegated the question of arbitrability to an arbitrator. The decision seemed to shrink the role of federal courts in resolving arbitration disputes. The decision in New Prime, however, seems to expand the role of federal courts in resolving these disputes.

The changing scope of the FAA is something that retail investors should be aware of as they make their investment decisions with brokerages. FINRA, the regulatory organization overseeing a majority of brokerage houses, resolves investor disputes through arbitration. Although the Court’s most recent decisions on the FAA do not implicate FINRA, the way the Court approaches arbitration could have an impact on the field in general.