Supreme Court to decide lease-to-own trucking arbitration case

The Supreme Court of the United States. ( Photo: Wikimedia Commons )

The Supreme Court of the United States. (Photo: Wikimedia Commons)

Yesterday the Supreme Court agreed to hear the case of New Prime Inc. v. Oliveira, a suit between a large trucking carrier and a long-haul driver, Dominic Oliveira, over whether labor disputes brought by ‘independent contractors’ can be forced into arbitration. The Federal Arbitration Act contains an exemption for transportation employees’ “contracts of employment”: at issue is whether an independent contractor’s Operating Agreement in a lease-to-own arrangement qualifies as a “contract of employment” under the FAA. In essence, Prime wants to be able contain disputes with its lessee drivers to arbitration, a cheaper alternative to litigation, while Oliveira contends that the operating agreements of lessee-drivers should be exempt from arbitration.

The facts begin in 2013 when Oliveira joined New Prime Inc.’s “Paid Apprenticeship” program, under which new drivers haul freight alongside an experienced driver for 10,000 miles and are guaranteed a minimum of $600 per week. Prime did not pay Oliveira for his apprenticeship, but did begin paying Oliveira when he graduated to “driver trainee”—about $4 per hour. After driving 30,000 miles as a “driver trainee,” Oliveira became a regular driver, and although he performed exactly the same work as other drivers Prime labeled “employees,” Oliveira’s Operating Agreement categorized him as an “independent contractor.”

Even as an “independent contractor,” Oliveira did not make minimum wage driving for Prime. Prime made regular deductions from Oliveira’s paycheck for lease payments on his truck, for tools he was required to buy, and fuel purchases. 

"Because of these deductions, on several occasions, Mr. Oliveira’s paycheck was actually negative, despite having spent dozens of hours on the road driving for Prime. That is, Prime sometimes charged Mr. Oliveira for working for the company,” wrote Oliveira’s lawyers in their brief to the Supreme Court. In March 2015, Oliveira sued Prime, alleging that the carrier had violated state and federal law by failing to pay him minimum wage. Prime moved to compel arbitration, based on an arbitration clause in the Operating Agreement it required Oliveira to sign. The district court that initially heard the suit denied the motion to compel arbitration and the First Circuit affirmed that decision.

Aside from the issue of whether independent contractors’ Operating Agreements should be considered “contracts of employment” for the purposes of the Federal Arbitration Act, there is another minor issue: whether an arbitrator instead of a court gets to decide whether the FAA applies to Prime’s Operating Agreement. Prime wants the arbitrator to get to decide whether to apply the FAA; Oliveira wants the court to decide. Both the district court and the First Circuit found that judicial courts should decide whether the FAA applies to Prime’s Operating Agreement, even though the Operating Agreement stated that the question of “arbitrability” should be decided by an arbitrator.

Both the American Trucking Associations (ATA) and the U.S. Chamber of Commerce filed amicus briefs before the Supreme Court on behalf of New Prime, Inc. 

The ATA was keen to defend carriers’ use of arbitration to resolve disputes with employees. Arbitration often favors the employer in comparison with litigation, because the plaintiff is not entitled to due process under the normal rules of civil procedure, arbitrated rulings are often kept secret, and are generally contained to the case in dispute. In other words, if an employer loses an arbitration with an employee, the finding only affects that particular transaction or contract, whereas a court ruling by a judge might force the company to fundamentally change the way it treats all of its employees. Arbitration is, in general, a less costly and less risky way for employers to handle potentially tortious claims from their employees.

“Motor carriers and independent contractors turn to arbitration because—as Congress has repeatedly found—arbitration allows parties to avoid the ‘delays, expense, uncertainties, loss of control, adverse publicity, and animosities that frequently accompany litigation of business disputes,’” wrote the ATA. The ATA claimed that the First Circuit’s decision would effectively end the use of arbitration in trucking, because neither the carrier nor the owner-operator would have an incentive to agree to it in the first place if arbitration clauses in Operating Agreements are found to be unenforceable. “As a result, motor carriers will no longer be able to count on arbitration as a lower-cost, more efficient alternative to litigation as a means of resolving disputes with owner-operators,” the ATA wrote. 

The U.S. Chamber of Commerce’s amicus brief focused more on the importance of maintaining the distinction between independent contractors and employees. “The distinction between employees and independent contractors is well established in the law, and was settled at the time the FAA was enacted in 1925. Indeed, this Court made clear in Circuit City that the exemption to arbitration contained in Section 1 was designed to avoid conflicts with existing or impending federal statutes that had their own alternative dispute-resolution mechanisms for certain kinds of employees, such as ‘seamen,’ ‘railroad employees,’ and ‘employees’ of ‘air carriers.’ But those other federal statutes do not reach independent contractors, and therefore it would make little sense for Congress to have shoehorned independent contractors into Section 1’s exemption,” the Chamber of Commerce wrote in its brief.

Neither the ATA or Chamber of Commerce explicitly addressed Oliveira’s argument that Prime’s “independent contractors” were required to do the same kind of work as employees and should therefore be classified as such, with all the protection from onerous leasing arrangements that “employee” status would entail. 

Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.