Case of the Day: New Prime Inc. v. Oliveiera

Supreme Court building in the evening
Credit: Joe Ravi (CC BY-SA)

I hope my post on Monday didn’t mislead you. I suggested that parties arguing in favor of arbitration generally win in the Supreme Court. But as today’s case, New Prime Inc. v. Oliveira (S. Ct. 2019), shows, they don’t always win.

Oliveira was an independent contractor working as a truck driver for New Prime, an interstate trucking company. The contract between the parties had an arbitration clause. Oliveira sued New Prime, purportedly on behalf of a class, arguing that New Prime treated its drivers as employees, not contractors, and that it failed to pay them the minimum wage. New Prime moved to compel arbitration.

The FAA, which authorizes and requires courts to compel arbitration when the parties have agreed to arbitrate, contains an exception. “Contracts of employment of … workers engaged in foreign or interstate commerce” are not within its scope. In a unanimous decision written by Justice Gorsuch, the Court agreed with the First Circuit and Oliveira that the district court properly denied the motion to compel arbitration.

The holding rests on the conclusion (which the Court reached and which I won’t cover here) that the exclusion in the statute applies even if the plaintiff is an independent contractor rather than an employee. In light of my earlier post, you may wonder, “why isn’t the scope of the FAA a question for the arbitrator to decide?” The power to compel arbitration, found in §§ 3 and 4 of the FAA can apply at all only if the statutory prerequisites of § 1 (which contains the exclusion) are met. And while the parties may delegate arbitrability to the arbitrator:

A delegation clause is merely a specialized type of arbitration agreement, and the Act “operates on this additional arbitration agreement just as it does on any other.” So a court may use §§3 and 4 to enforce a delegation clause only if the clause appears in a “written provision in … a contract evidencing a transaction involving commerce” consistent with §2. And only if the contract in which the clause appears doesn’t trigger §1’s “contracts of employment” exception.

The decision seems plainly correct, and it goes to show that a pro-arbitration policy doesn’t mean that the pro-arbitration position always wins or that the courts have abdicated their responsibility to say whether parties have agreed to arbitration except in special cases where the parties have clearly and unmistakably taken that power from the courts and the contract comes within the FAA in the first place.

2 responses to “Case of the Day: New Prime Inc. v. Oliveiera”

  1. I found it curious that New Prime did not, in the alternative, seek to compel arbitration under the Massachusetts Uniform Arbitration Act for Commercial Disputes.

    1. That is a very good point. After all, the MUAA applies to any “written agreement to submit any existing controversy to arbitration,” except “collective bargaining agreements to arbitrate.” So the quirky limitations of the FAA aren’t an issue under the Massachusetts statute.

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