High Court Rules Independent Contractors May Bypass Arbitration, Challenge Fleets in Court
In a unanimous decision, the U.S. Supreme Court on Jan. 15 limited the ability under federal law for motor carriers to settle disputes with owner-operators in arbitration, a ruling that could cause an increase in the number of future class-action lawsuits by truck drivers.
The 8-0 ruling came in an appeal of a class-action lawsuit led by truck driver Dominic Oliveira against motor carrier New Prime Inc. that posed the question of whether an independent owner-operator under contract with a motor carrier must take any disputes to arbitration or instead be permitted to take grievances to court. The case was argued before the high court on Oct. 3, and several legal experts said at the time that the court’s questions tended to suggest the justices were leaning toward the drivers’ side.
Richard Pianka, deputy general counsel for American Trucking Associations, said the high court ruling means in effect that the Federal Arbitration Act — which generally requires parties to honor agreements to arbitrate disputes — no longer underpins agreements between motor carriers and drivers who are independent contractors.
“That doesn’t mean that arbitration agreements can’t be enforced, because many states would enforce arbitration agreements under their own laws,” Pianka told Transport Topics. “But it sort of takes away the ability of carriers and owner-operators to rely on the uniformity of the Federal Arbitration Act, and that is very disappointing because our industry is one that crosses state lines all the time and we need that federal uniformity.”
Trucking attorneys said that arbitration has been a critical tool for motor carriers to resolve disputes, primarily because they are informal, quicker to resolve and do not allow a contract driver’s complaint to be turned into an entire class.
“A lot of the smaller carriers out there never even think about putting an arbitration provision in their agreement,” said Rob Moseley, a transportation attorney and leader of the transportation practice group at the law firm Fox Rothschild LLP in Greenville, S.C. “This is mostly a big carrier fight. Generally speaking, unless you have 500 or 1,000 trucks you’re not a viable class-action defendant. There’s no gold in the pot at the end of the rainbow.”
A Prime Inc. truck on the highway. (John Sommers II for Transport Topics)
The legal arguments harken back to the Federal Arbitration Act of 1925, which contains a provision that would exempt contracts of employment for transportation workers from arbitration, thereby allowing the worker to file his grievance in state or federal court. In this case, there was some question as to whether the provision applied to contracts between carriers and independent contractors.
“A court should determine whether an exclusion applies before ordering arbitration,” the Supreme Court said in its Jan. 15 ruling. “A court’s authority to compel arbitration under the act does not extend to all private contracts, no matter how emphatically they may express a preference for arbitration.”
Greg Feary, president and managing partner at the law firm of Scopelitis, Garvin, Light, Hanson & Feary in Indianapolis, said the high court reached back to the day when the law was first created in 1925 and what an employment agreement meant at the time.
“What they construed is that effectively an employment agreement was just an agreement for one person to work for another,” Feary said. “That could include independent contractors. We look at it in today’s legal environment is that there are employment agreements and there are independent contractor agreements, and that they’re different animals.”
John Lewis, a partner with the Cleveland office of the law firm of BakerHostetler, filed an amicus curie brief in support of New Prime.
Lewis said that despite the ruling on federal arbitration, motor carriers who operate in many states might be able to rewrite their arbitration contracts with owner-operators and tailor them to specific states where they could be enforced.
“My sense is that plaintiff counsels are going to use this New Prime decision to challenge arbitration agreements in the transportation industries,” Lewis said. “I think it’s a worthwhile endeavor to take a look at the case and try to figure out where their truckers are located and what they’re doing and what other transportation arms of the company might exist.”
“I think that as an industry what’s going to happen is that people are going to look at their agreements,” said Margaret Grover, an employment attorney with the Oakland, Calif., law firm of Wendel Rosen Black & Dean. “One of the things they may try to do is pin them to state law because state arbitration acts do not have this exemption. The down side of that is that you lose some of the consistency.”
Said Scopelitis attorney Braden Core, “Pretty much every state has some version of the arbitration act on its books. They vary a little bit from state to state. The problem that you run into is if someone has a big over-the-road operation where someone may live in California but are driving across the country running long-haul freight, what state law applies?”
Neither New Prime nor an attorney representing the drivers returned messages seeking comment.
Supreme Court transcript by Transport Topics on Scribd