This morning, the Supreme Court affirmed a Federal
Arbitration Act decision and held that a court – not the arbitrator -- should decide whether a §1 exemption for “contracts
of employment of . . . workers engaged in foreign or interstate commerce”
applied to negate FAA enforcement of the arbitration clause in the plaintiff
trucker’s independent contractor agreement.
New
Prime, Inc. v. Oliveira, No. 17-340
(1-15-19). Further, the Court held that the common
meaning of “worker” and “contract of employment” at the time the FAA was enacted in 1925 would control its
interpretation of those terms instead of the contemporary understanding of
those terms in order to protect the reasonable reliance of the public. In 1925, “employment” was broadly understood
to encompass workers and independent contractors and not just employees.
According to the Court’s opinion, the plaintiff was hired
under an “operating agreement” to work as an independent contractor truck
driver for the defendant interstate trucking firm. The operating agreement contained an
arbitration clause which provided that the arbitrator should decide questions
of arbitrability. The plaintiff filed a class action claiming that he and his
fellow drivers had been misclassified as independent contractors and were
entitled to minimum and overtime wages. The defendant company moved to compel
arbitration. The plaintiff argued that
he and his fellow drivers were exempt from FAA enforcement under §1, but the
company argued that this decision should be made by the arbitrator and, if not,
“contracts of employment” referred to common law and statutory employees, not
independent contractors like the plaintiff and his fellow drivers.
The Court observed that the FAA only compels arbitration of
disputes when the FAA applies. Among other
things, the FAA requires an “agreement in writing” between the parties and
applies to disputes which arise from a “written
provision in any maritime transaction or a contract evidencing a transaction
involving commerce.” The
FAA also specifically exempts certain agreements from enforcement. Section 1 of the FAA defines the terms “maritime
transactions” and commerce,” and then provides:
but nothing herein contained
shall apply to contracts of employment of seamen, railroad employees, or any
other class of workers engaged in foreign or interstate commerce.
This exemption existed because:
Congress had already prescribed alternative employment
dispute resolution regimes for many transportation workers. And it seems Congress “did not wish to
unsettle” those arrangements in favor of whatever arbitration procedures the
parties’ private contracts might happen to contemplate.
Clearly, a court could not apply the
FAA and compel arbitration before deciding for itself whether the FAA even
applied:
The parties’ private agreement may be crystal clear and
require arbitration of every question under the sun, but that does not
necessarily mean the Act authorizes a court to stay litigation and send the
parties to an arbitral forum.
This is not a new concept. Prima Paint Corp. v. Flood & Conklin
Mfg. Co., 388 U. S. 395, 402 (1967).
The Court then rejected the defendant
company’s argument that “contracts of employment” covered only agreements with common law and statutory employees and not to
contacts of employment with workers (like the plaintiff) who might be independent
contractors. The parties agreed that
the plaintiff was a worker engaged in interstate commerce and the plaintiff was
willing to assume – only for this issue – that he was an independent
contractor.
In deciding whether “contracts of
employment” included independent contractor agreements, the Court observed:
“[I]t’s a ‘fundamental canon of statutory construction’ that
words generally should be ‘interpreted as taking their ordinary . . . meaning .
. . at the time Congress enacted the statute.’” . . . After all, if judges
could freely invest old statutory terms with new meanings, we would risk
amending legislation outside the “single, finely wrought and exhaustively
considered, procedure” the Constitution commands. INS v. Chadha, 462 U. S. 919,
951 (1983). We would risk, too,
upsetting reliance interests in the settled meaning of a statute. . . .
That, we think, holds the key to the case. To many lawyerly ears today, the term
“contracts of employment” might call to mind only agreements between employers
and employees (or what the common law sometimes called masters and
servants). Suggestively, at least one
recently published law dictionary defines the word “employment” to mean “the
relationship between master and servant.” Black’s Law Dictionary 641 (10th ed.
2014). But this modern intuition isn’t
easily squared with evidence of the term’s meaning at the time of the Act’s
adoption in 1925. At that time, a
“contract of employment” usually meant nothing more than an agreement to
perform work. As a result, most people
then would have understood §1 to exclude not only agreements between employers
and employees but also agreements that require independent contractors to
perform work.
The Court examined prior law dictionaries and found that “contracts
of employment” was not even a term of art or defined term in 1925:
It turns out, too, that the dictionaries of the era
consistently afforded the word “employment” a broad construction, broader than
may be often found in dictionaries today.
Back then, dictionaries tended to treat “employment” more or less as a
synonym for “work.” Nor did they
distinguish between different kinds of work or workers: All work was treated as
employment, whether or not the common law criteria for a master-servant
relationship happened to be satisfied.
. . . This Court’s
early 20th-century cases used the phrase “contract of employment” to describe
work agreements involving independent contractors. Many state court cases did the same. So did a variety of federal statutes. . . . We
see here no evidence that a “contract of employment” necessarily signaled a
formal employer-employee or master-servant relationship.
Further, the §1 of the FAA itself refers to “contracts of
employment” with “workers.” Workers,
then as now, refers to a broader class of individual which includes both
employees and independent contractors.
The Court rejected the defendant company’s argument that “contracts
of employment” must necessarily only cover employees because the words “employment”
and “employee,” while derived from a common root did not develop simultaneously
and have different understandings and legal meaning with “employment” traditionally
having a broader meaning than employee.
While “contracts of employment” clearly included contracts with
employees, they could also include contracts with workers or independent
contractors who were not employees.
The Court refused to
enforce the purpose of the FAA over the statutory mandates or to utilize the
Court’s inherent authority to compel alternative dispute resolution.
Justice Ginsburg agreed with the Court’s decision and rationale, but not
surprisingly, also asserted that Congress could design legislation that should
change with the times: sometimes, “[w]ords in statutes can enlarge or contract
their scope as other changes, in law or in the world, require their application
to new instances or make old applications anachronistic.”
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
