The Federal Arbitration Act mandates arbitration of actions where a valid arbitration provision is entered between the parties. The Federal Arbitration Act is limited by some exceptions, however. For example, Section 1 of the Federal Arbitration Act excludes from its reaches “contracts of employment of seamen, railroad, or any other class of workers engaged in foreign or interstate commerce.” It has not always been clear, however, whether the trial court or the arbitrator should determine whether a Section 1 exception applies or what constitutes a “contract of employment” under Section 1. The U.S. Supreme Court addressed both of these issues in New Prime Inc. v. Oliveira, No. 17–340 (January 2019). Specifically, the Supreme Court held that trial courts should decide whether §1 of the Federal Arbitration Act exclusion applies before ordering arbitration. The Court also adopted a broad definition of “contracts of employment” under the Act and held that “contracts of employment” was not limited to employer-employee relationships. Instead, the Court held that “contracts of employment” under the Act also included contracts with independent contractors such as the contract that Oliveira had with New Prime.
New Prime is an interstate trucking company and Dominic Oliveira works as one of its drivers. In a class action lawsuit in federal court, Mr. Oliveira argued that New Prime denies its drivers lawful wages. New Prime asked the court to invoke its statutory authority under the Federal Arbitration Act and compel arbitration according to the terms found in the parties’ agreements. Oliveira argued that even when the parties’ contracts mandate arbitration, the Act doesn’t always authorize a court to enter an order compelling it. §1 carves out from the Act’s coverage “contracts of employment of . . . workers engaged in foreign or interstate commerce.” Therefore, Oliviera argued, the Act supplied the district court with no authority to compel arbitration in this case.
While a court’s authority under the Arbitration Act to compel arbitration may be considerable, it isn’t unconditional. If two parties agree to arbitrate future disputes between them and one side later seeks to evade the deal, §3 and 4 of the Act often require a court to stay litigation and compel arbitration “according to the terms” of the parties’ agreement. But this authority doesn’t extend to all private contracts, no matter how emphatically they may express a preference for arbitration. Most relevant for our purposes, §1 warns that “nothing” in the Act “shall apply” to “contracts of employment of seamen, railroad, or any other class of workers engaged in foreign or interstate commerce.”
The Supreme Court agreed with the First Circuit’s holding that a trial court should decide for itself whether §1’s “contracts of employment” exclusion applies before ordering arbitration.
With that, the disputed question was clear: What does the term “contracts of employment” mean? If it refers only to contracts that reflect an employer-employee relationship (as New Prime alleged), then §1’s exception is irrelevant, and a court is free to order arbitration. But if the term also encompasses contracts that require an independent contractor to perform work, then the exception takes hold and a court lacks authority under the Act to order arbitration, exactly as Oliveira argued.
The Court agreed with Oliveira and stated that when Congress enacted the Arbitration Act in 1925, the term “contracts of employment” referred to agreements to perform work. Oliveira is entitled to the benefit of that same understanding today. Accordingly, his agreement with New Prime falls within §1’s exception, the court of appeals was correct that the trial court lacked authority under the Act to order arbitration, and the judgment is affirmed.
Link to the Opinion: https://www.supremecourt.gov/opinions/18pdf/17-340_o7kq.pdf
This article was written by Ryan Hansen, Law Clerk
