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Supreme Court Could Redefine Independent Driver Status

Interpretation of a 1920s arbitration law could reshape the freight transportation and delivery industry.

A Supreme Court tussle over whether a 1925 law’s use of the word “worker” means the same thing that the word “employee” means today threatens the viability of independent contractor drivers in trucking and home deliveries.

On Oct. 3 oral argument was heard by the High Court in the case of New Prime Inc. v. Oliveira, which involves the question of whether the 93-year-old Federal Arbitration Act (FAA) applies to owner-operator drivers. (To risk making matters even more confusing, New Prime Inc. is the legal name of a temperature-controlled trucking company that operates nationwide under the name of Prime Inc., which we will use in this article instead of New Prime).

Like many other companies that use independent contractors, Prime’s contract with them requires that wage and working condition disputes go to arbitration instead of taking these matters to court.

Dominic Oliveira entered into just such an independent contractor agreement with Prime requiring the parties to arbitrate any disputes. His agreement also required Oliveira to bring any claims on an individual basis only, not as part of a class, collective or multi-party action. Bringing class action lawsuits against employers has been a favored tactic of unions seeking to establish that drivers are employees instead of contractors.

Oliveira chose to sue Prime, claiming he had really been an employee during the time he had agreed to serve as an owner-operator and that the arbitration clause didn’t apply. He sought reimbursement for the company failing to pay him minimum wage for all hours he worked during the time he was a mislabeled employee. His assertion, if allowed to stand, would apply to other Prime owner-operators as well.

Oliveira’s attorneys hold that the 1925 FAA specifically excludes “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from containing arbitration clauses. Prime’s attorneys argued the “contracts of employment” phrase used in the law excludes independent truckers, who are operating as separate business entities leasing out both their truck equipment and the drivers’ services to another business entity.

Unfortunately for Prime, a federal district court in Massachusetts and the First Circuit U.S. Court of Appeals agreed with Oliveira’s attorneys that the owner-operator agreement was a contract of employment. Questions posed by the Supreme Court justices at the Oct. 3 oral argument suggest that there may be an unhappy ending in store for Prime when a decision is handed down early next year.

Several of the justices expressed skepticism at the Prime attorney’s assertion that the independent contractor agreement in this case was between Prime and a limited liability company that Oliveira formed, making it an agreement between two businesses. Seemingly sympathetic to the Oliveira position were Chief Justice John Roberts and Justices Neil Gorsuch, Elena Kagan, Ruth Bader Ginsberg and Samuel Alito.

However, we should keep in mind that the history of the Supreme Court is littered with the dinged reputations of prognosticators who guessed the wrong way the court would eventually decide based on questions the justices chose to pose during oral arguments.

Also, it can be assumed that the justices are aware that if Prime loses, judges would be forced into a position where they would be expected to decide whether or not arbitration can be applied in each and every case. The whole point of FAA, like other arbitration laws, is to prevent the courts from becoming clogged with these kinds of cases.

The Role of Arbitration

This fall the Supreme also will hear two more cases regarding the FAA and the role of arbitration. One of them, Lamp Plus v. Varela, is over whether the federal law prevents a court finding under state law whether a poorly constructed arbitration agreement allows class arbitration. The second case is Henry Schein v. Archer and White Sales, which deals with the ability of a lower court to decide that an arbitration claim is totally groundless and therefore cannot be enforced.

Last May, when Justice Anthony Kennedy was still on the High Court, it rendered a 5-4 decision in Epic Systems Corp. v. Lewis that strengthened the ability of companies to invoke arbitration in regard to other federal labor laws, including class action waivers dealing with the National Labor Relations Act (NLRA) and independent contractor classifications under the Fair Labor Standards Act (FLSA).

Several other significant cases bubbling away in the lower courts involve Grubhub drivers who claim they should be considered employees instead of independent contractors—cases that could also have widespread impact on ride-sharing services like Uber and Lyft. Founded in 2004, Grubhub processes more than 267,000 restaurant meal home delivery orders each day in more than 1,000 cities and localities.

Drivers have filed class action lawsuits in California, Illinois and other states that also argue that the FAA arbitration provision does not apply to them because they are transportation workers—although it is difficult to understand how any of these cases survived the fact that the FAA requirement specifically refers to interstate and foreign transportation.

Unless Grubhub drivers are delivering steak dinners across state borders or into Windsor, Ont., Canada, from Detroit, it seems pretty obvious that the transportation worker exclusion would not apply to them. However, while the drivers’ lawyers admit that they do not actually cross state lines, they assert that the delivery drivers are engaged in interstate commerce because they are involved in the “flow” of interstate commerce based on the kinds of goods used.

All of the Grubhub lawsuits currently wending their way through various stages of litigation could ultimately fizzle out if the Supreme Court upholds the FAA coverage of truck driver owner-operator contracts in the Prime Inc. and other cases.

“Lawsuits like these are not positive for mainstream transporters of goods in any segment of the industry,” say attorneys Richard A. Plewacki and J. Allen Jones of the law firm of Benesch Friedlander Coplan & Aronoff.

“The publicity received by these cases, even though it may be determined that Grubhub acted appropriately and did not misclassify its delivery drivers, tarnishes the tireless efforts of numerous motor carriers that faithfully observe the distinctions between independent contractors and employees in their business operations,” they point out.

Plewacki and Jones also stress that these suits, and other cases like them, reinforce the importance of companies that rely on the services of these kinds of contractors to customize their independent contractor service agreements, conduct regular owner-operator fleet assessments and pay careful attention to the distinctions between independent contractors and employees.

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