Arbitrating Disputes Between Independent Contractors and Motor Carriers Under the FAA

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April 6, 2018
Eric Baker
SmithAmundsen Transportation Alert; SmithAmundsen Corporate Alert

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On February 26, 2018, the United States Supreme Court granted the certiorari petition of a motor carrier in a case with wide-ranging implications for the enforcement of arbitration clauses in independent contractor agreements between owner-operators and trucking companies. At issue is the applicability to independent contractors of the Federal Arbitration Act (FAA), which exempts from arbitration, “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. If independent contractor agreements are considered “contracts of employment” under the FAA, motor carriers would not be able to require owner operators to arbitrate their disputes with them under federal law.

In this case, the First Circuit Court of Appeals examined the arbitration clause contained in the independent contractor motor carrier agreement. That clause provided for arbitration and contained a delegation clause under which the arbitrator was to decide the arbitrability of disputes between the parties. The case arose out of the plaintiff’s relationship with the defendant as both an independent contractor and as a prior employee. The plaintiff claimed that his duties as an independent contractor were substantially the same as when he was a company driver. As such, he sued for violations of state and federal minimum wage laws and unjust enrichment, arguing he had been misclassified by the company.

Because of the arbitration clause in its agreement, the motor carrier moved to compel arbitration in the District Court. The District Court denied the motion. On appeal the First Circuit ruled that the question of whether the FAA applies to a particular situation is a threshold question for the court to determine before compelling arbitration under the FAA and that the § 1 exemption applies to “a transportation-worker agreement that establishes or purports to establish an independent-contractor relationship.” In its holding on the first issue, the First Circuit acknowledged a split of authority and opted to follow Ninth Circuit precedent, finding that a question as to a court’s authority to act under the FAA is an “antecedent determination” that must be made by the court before arbitration “can be compelled.” In other words, the court found that if the contract was exempt from arbitration, the court would not have authority under the FAA to order arbitration, even where a provision specifically delegated arbitrability to the arbitrator. On the second issue, the court found that the historical context of the phrase “contracts of employment” included independent contractor agreements.

The Supreme Court will now decide: 1) whether the court or the arbitrator should determine whether the § 1 exemption applies, even where the parties delegated arbitrability issues to the arbitrator, and 2) whether arbitration provisions in agreements between motor carriers and independent contractors are exempt from the provisions of the FAA. Until then, uncertainty continues as to whether such agreements will be exempt from the FAA and whether parties may be forced to rely instead on the more limited provisions offered by state arbitration laws. Motor carriers that have contractor agreements containing arbitration provisions should be aware of their potential unenforceability under federal law and should examine state arbitration laws to determine whether they may provide an alternative means for dispute resolution.