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Law Alert: U.S. Supreme Court Unanimously Declares Owner-Operators Exempt from the Federal Arbitration Act

by Braden K. Core, Gregory M. Feary, Prasad Sharma, Brandon K. Wiseman, Ryan W. Wright

January 15, 2019

 

U.S. Supreme Court Unanimously Declares Owner-Operators Exempt from the Federal Arbitration Act

In a case closely watched by the transportation industry, this morning the U.S. Supreme Court issued its opinion in New Prime, Inc. v. Oliveira.

The case involved the exemption from the Federal Arbitration Act (FAA) for “contracts of employment” with “transportation workers.” Mr. Oliveira worked as an owner-operator under lease to New Prime and later sued the company, claiming he had been misclassified as an independent contractor. (For more background on New Prime, we previewed the issues presented in the case here, and we recapped the oral argument here.)

In a unanimous opinion (by a vote of 8-0, because Justice Kavanagh had not been appointed at the time oral argument took place), the Court held that Mr. Oliveira had a “contract of employment” with New Prime even assuming he was properly classified as an independent contractor. The Court reasoned that the phrase “contract of employment,” as it was used in 1925 (when Congress passed the FAA), encompassed “agreements to work” and was not limited to the modern conception of a formal employer-employee relationship.

The upshot is that owner-operators like Mr. Oliveira—i.e., those who personally provide services to motor carriers pursuant to an independent-contractor agreement and operate only one truck—are exempt from the FAA, confirming the Firm’s long-standing guidance to clients that owner-operators may be found exempt.

During the oral argument, several justices probed whether an owner-operator who did not personally perform services or who operated multiple trucks would be subject to the exemption. The Court did not address these issues in its opinion, arguably leaving them open for future litigation.

While today’s holding would seem to foreclose efforts to enforce arbitration agreements with owner-operators under the FAA, it does not necessarily limit motor carriers’ ability to have those agreements enforced under state arbitration law. However, those laws will vary by jurisdiction, and some states have less favorable—or less well-developed—precedent on key issues, such as class-arbitration waivers.

On Monday, January 28, 2019, Scopelitis will host a complimentary webinar for clients during which our attorneys will unpack today’s opinion and discuss the industry’s options going forward. A registration notice will be emailed separately. If you have questions about the impact of the Court’s holding or want to know how best to structure an arbitration agreement with owner-operators or other transportation workers, make sure you sign up for the webinar. In the meantime, you can reach out to Scopelitis attorneys Greg Feary, Braden Core, Brandon Wiseman, Prasad Sharma, or Ryan Wright.

 

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Scopelitis Transportation Law Alerts are intended as a report to our clients and friends on legal developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.

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