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Arbitration isn’t dead after New Prime, law firm says, but the states will be the battleground

The trucking industry has been “whipsawed,” according to trucking lawyer Braden Core, by a series of decisions that have not clarified the legal status of whether an independent owner operator is an employee or an independent contractor.

Core, a partner at the Scopelitis law firm of Indianapolis, which specializes in trucking-related legal issues, noted the California Dynamex case from earlier this year which held that a group of workers in California for Dynamex were employees, using the so-called A-B-C test. Earlier this month in Indiana, the state’s Supreme Court used the same A-B-C test to find that a group of employees at a company called QD-A were  independent contractors. Just this month, in a case involving Super Shuttle, the airport transit company, a widened definition of independent contractors was handed down by the National Labor Relations Board.

And now into the mix is the case of Oliviera vs. New Prime, decided earlier this month by the U.S. Supreme Court. The case doesn’t make any sort of clear stand on whether an independent contractor is an employee or truly independent, but it does add to the list of different ways in which an independent owner-operator can be dealt with when they turn to either the courts or arbitration to redress grievances.

Core led a Scopelitis webinar Monday to discuss the New Prime case. In the case, an independent driver hired by New Prime, Dominic Oliveira, had a disagreement with New Prime over compensation. Oliviera filed suit, New Prime said it needed to go to arbitration. The Supreme Court upheld lower court cases that the Federal Arbitration Act, when it was written in the 1920’s, used language that today could be interpreted to mean that an independent owner operator could be seen as meeting a transportation exemption from the FAA, which means the dispute could head to court rather than through arbitration.

It also noted that Oliviera was engaged in interstate commerce so the FAA did apply to him.

The case was far more complicated than that. But Core–whose comments on the webinar tended to be aimed toward trucking companies that would presumably not be happy with the outcome of the New Prime decision–said there was a silver lining.

The Supreme Court ruled that the relationship between New Prime and Oliviera was a “contract of employment,” which allowed the driver to fit into the FAA exemption for transportation workers. “The one thing New Prime gives us is certainty,” Core said on the webinar. “Before there was significant uncertainty about what a ‘contract of employment’ was, and there were a lot of really good arguments that it shouldn’t include owner-operators. Well, the Supreme Court saw it differently.”

What the case does not mean, Core said, is that drivers will never find themselves in an arbitration process even if they prefer the courts. State arbitration rules, he said, may allow trucking companies to make that happen.  

“There are a lot of hot takes out there about this case and some of them miss the mark,” Core said. One of them, he added, is that New Prime means the end of arbitration for owner-operators. “That is simply not the case,” Core said.

That’s because, according to Scopelitis’ Ryan Wright, also on the webinar, there are lower court rulings that hold that arbitration rules may be enforceable. “Several lower courts have expressly held that even if an arbitration agreement is exempt under the FAA, it may be enforceable under state arbitration law,” Wright said.

If a trucking company is taken to court by a driver, in terms of arbitration, “that doesn’t mean that you are at the end of the line, and the reason is state law,” Core said. He showed a map of the U.S. on the webinar in which each state was colored differently. A company can consider using state law to enforce arbitration, Core said, but “you now multiply the complexity by 50.”

“Pretty much every state has a law that will enforce arbitration,” Core said. Only Louisiana has a transportation exemption like that found in the FAA.

But companies might not be ready for them, he added. Companies will need to “drill down” into their arbitration agreements that previously were drawn to be in compliance with federal arbitration law. Now, Core said, companies need to see “how do we fare under state law?”

A pair of attorneys with Davis Wright Tremaine, Arthur Simpson and Giancarlo Urey, also noted that state arbitration laws are not impacted by the New Prime decision. But they added that(i)t likely follows that the question of whether federal courts must compel arbitration under state arbitration laws will be the subject of future litigation.”

As Core conceded, it is possible that companies don’t have an arbitration agreement in their contracts with owner-operators. Some companies, Core said, might have thought New Prime ended any reason to have one. But as he stressed, it had not, which brings a company back to the question of whether arbitration is preferable to litigation.

Conventional wisdom is that drivers want litigation as a way to resolve disputes if other negotiations have failed and companies want arbitration. (When New Prime was decided, it went against another nugget of conventional wisdom, that a conservative court generally favors arbitration. But as several analysts have noted, conservative jurists also tend to favor stricter interpretation of text and their interpretation of the FAA led them to conclude that an owner-operator like Oliviera fell under the transportation exemption).

Earlier in the webinar, Prasad Sharma of Scopelitis reviewed some of the pros and cons of arbitration vs. litigation. Arbitration is private and confidential so a negative discussion of a company’s behaviors doesn’t get aired in a public courtroom. The arbitrator is likely to have subject matter expertise, unlike a judge or jury. It’s usually cheaper. It’s usually “one and done,” as there are limited or no grounds for an appeal that can drag on for years, as they do in the court system.

But there are “pros” in the legal system, Sharma said, most notable a tighter set of rules and legal precedents upon which to base a legal action. Even then, he added, “a court can be far from predictable in following precedent.”

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.