Tag Archives: Arbitration

Are Independent Contractor Transportation Workers Exempt from the Federal Arbitration Act?

Contributed by Brian Wacker, December 10, 2018

The Supreme Court recently heard arguments on an issue which will have lasting implications on the arbitrability of claims between employers and certain independent contractors. Where the Court lands will have significant impact on employers moving forward, not only with regard to the form of contracts employers offer, but also with regard to how they classify workers in the transportation field.

Currently, the Federal Arbitration Act (the “FAA”) authorizes transportation employers to include mandatory arbitration provisions in employment contracts, which can require employees to arbitrate workplace disputes in lieu of going to court, and limit them to bringing those claims individually. This is obviously a strong tool for employers seeking to minimize the uncertainty and costs of litigation.


Supreme Court Building

However, as employers with workers engaged in transportation should know, an exception is made in Section 1 of the FAA, exempting “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. §1. This has become known as the “transportation” exemption. Historically, Congress included this exemption, in part, because transportation workers were subject to separate federal dispute resolutions statutes already in effect.

In New Prime, Inc. v. Oliveira, Sup. Ct. Case. No. 17-340, the Court considered the “transportation” exemption in the FAA – specifically two issues: (1) whether disputes over its applicability should be resolved by an arbitrator or a judge and (2) whether the exemption applies to independent contractors as well as employees.

The scope of the “transportation” exemption has been wrangled over for years, culminating in the 2001 landmark decision in Circuit City Stores, Inc. v. Adams, where the Court plainly read the exemption, holding that it did not apply to any workers outside of the delineated transportation industries. In other words, non-transportation workers could no longer try to seek the benefit of the exemption.

Despite this precedent, workers have continued to try to expand its application with New Prime being just the latest example – this time to independent contractors working in the transportation field. Following submissions and several amicus briefs in support of both sides, the issue and positions of the parties were clear. When defining the exemption’s scope, it uses the term “contracts of employment.” New Prime, the Petitioner, has asked the Court to interpret this term narrowly, arguing it should mean only those contracts that establish a common-law employment relationship. Oliveira, the Respondent, argued the term should refer to all agreements to perform work, regardless of form, which would necessarily include independent contract agreements.

The Court heard oral argument on October 3, 2018. Because the case was submitted prior to new Associate Justice Kavanaugh’s confirmation, the case was only heard by eight justices. So if the justices split along ideological lines 4-4, Oliveira will prevail and the First Circuit’s ruling that the independent-contractor agreement at issue was a “contract of employment” for purposes of the exemption.

The Court is not expected to rule until early 2019. This blog will update as soon as the Court’s opinion is issued.

String of Recent Decisions Confirm Employer’s Right to Enforce Class Action Waivers in Arbitration Agreements

Contributed by Suzanne Newcomb

In June, the Supreme Court upheld a contractual ban on class arbitration despite that the cost of individual arbitration so exceeded the potential recovery it made pursuing the claims impractical.  American Express v. Italian Colors.  AmEx was not an employment case but it begged the question:  might a bar to class or collective arbitration of FLSA claims also stand?  The Second Circuit answered with an unequivocal “yes” on Friday in Sutherland v. Ernst & Young and again Monday in Raniere v. Citigroup.

Sutherland earned a set salary for “low level clerical work.”  She sued for unpaid overtime “on behalf of herself and all others similarly situated.”  In addition to standard arbitration language, the agreement mandated that disputes “pertaining to different employees will be heard in separate proceedings.”  Sutherland sought $1,867 and claimed arbitration could cost $200,000.  She argued that the cost of individual arbitration so dwarfed the amount in controversy, it removed any incentive to enforce the statute.  The district court invalidated the arbitration agreement, finding the cost of individual arbitration prevented plaintiffs from “effectively vindicating” their rights.  Quoting AmEx, the Second Circuit reversed the holding, “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”   

So what are the practical implications?  We can confidently include class action waivers in arbitration agreements.  You can do it, does that mean you should?  The answer to that question, like the larger question of whether any arbitration agreement is right for your organization, is not as clear-cut.  Plaintiffs tend to file in court and fight for their right to litigate, thus adding a costly battle to the war.  Traditional arguments against enforcement remain, i.e. fraud, duress, unconscionability, etc.  Moreover, AmEx left the door open (though only slightly) for plaintiffs to argue an arbitration agreement is unenforceable when arbitration is unaffordable and thus prevents the plaintiff from pursuing her claims. 

Even when enforced, arbitration agreements are no panacea.  Arbitration is more private than traditional litigation and it can move more quickly, which can translate to lower attorney fees.  Arbitration removes the jury from the equation and with it the possibility of a “run away jury.”  However, the parties must pay the arbitrator.  Arbitrators tend to limit discovery, may not apply the rules of evidence as strictly and some shun summary judgment (a powerful tool for employers).  Furthermore, arbitrators are notorious for split decisions and there is very little room for appeal if you do not like the decision.  An effective class action waiver may mean fewer claims, but it could force an employer to fight a multitude of small claims.  Deciding whether an arbitration agreement is right for your organization and if so, whether that agreement should include a class action waiver, requires an individualized assessment and should not be taken lightly.

U.S. Supreme Court Decision Bolsters the Fact That Arbitration Provisions Are Here to Stay… For Now

Contributed by Carly Zuba

On November 26, 2012, the U.S. Supreme Court once again endorsed the arbitration of employment-related agreements.  The Court held that if a contract contains an arbitration provision and there is a subsequent challenge to the validity of the contract, the arbitrator – not a court – must hear that challenge.  In so holding, the Court reaffirmed its earlier precedent that when a contract contains an arbitration provision, the Federal Arbitration Act (“FAA”) trumps state law.

Specifically, the Court vacated an Oklahoma Supreme Court decision that voided the noncompetition provisions in two employment contracts on the grounds that they were against state public policy.  Both employment contracts contained the following arbitration clause:

Any dispute, difference or unresolved question between Nitro-Lift and the Employee (collectively the “Disputing Parties”) shall be settled by arbitration by a single arbitrator mutually agreeable to the Disputing Parties in an arbitration proceeding conducted in Houston, Texas in accordance with the rules existing at the date hereof of the American Arbitration Association.

After the employer served a demand for arbitration on two former employees, claiming that they had violated the noncompetition provisions, the former employees filed a lawsuit in Oklahoma state court seeking a declaration that the noncompetition provisions were void.  The trial court dismissed the case, finding that the arbitration provisions were valid and controlling and thus it was an arbitrator’s job to resolve the parties’ dispute.  On appeal, the Oklahoma Supreme Court rejected the trial court’s position, stating that “the existence of an arbitration agreement in an employment contract does not prohibit judicial review of the underlying agreement.”  Subsequently, the Oklahoma Supreme Court held that the noncompetition provisions were void and unenforceable under state law.

Well, the U.S. Supreme Court did not like this particular move by the state supreme court, holding that the decision ignored the U.S. Supreme Court’s precedent on the FAA.  The Court asserted that its string of decisions on the FAA forecloses this type of “judicial hostility towards arbitration.”  A pillar of the FAA’s substantive law is that allegations regarding the validity of a contract containing an arbitration provision must be resolved by an arbitrator – not by a federal or state court. 

Take-Away for Employers:  This U.S. Supreme Court decision cements the fact that when employment contracts contain arbitration provisions, employees cannot evade arbitration by seeking a judicial declaration that the contract is somehow void.  Arbitration clauses are alive, well and enforceable, folks – at least for the time being.