Supreme Court Rules that Question of Arbitrability is for the Courts

New Prime, Inc. v. Oliveira, 139 S. Ct. 532 (2019)

By H. Wayne Young

The plaintiff was a driver for New Prime, Inc., an interstate trucking company, and he sued New Prime for minimum wage violations under the Fair Labor Standards Act (FLSA). New Prime classified the plaintiff as an independent contractor. The plaintiff had signed an extensive arbitration agreement that included, in relevant part, a delegation clause that delegated authority to decide threshold questions of arbitrability to the arbitrator, and a severability clause.

When the plaintiff filed his Complaint, New Prime moved to stay litigation and compel arbitration. The plaintiff argued that the Federal Arbitration Act does not always authorize a court to compel arbitration, and specifically cited a carve out in Section 1 of the FAA for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” New Prime argued that any question of arbitrability (i.e. the application of Section 1) belonged to the arbitrator under the arbitration agreement’s delegation clause. New Prime also argued that the term “contracts of employment” was limited to contracts establishing an employer-employee relationship and did not apply since the plaintiff was an independent contractor. The Court was unpersuaded by either of New Prime’s arguments.

Specifically — and most importantly — the Court held:

While a court’s authority under the Arbitration Act to compel arbitration may be considerable, it isn’t unconditional. If two parties agree to arbitrate future disputes between them and one side later seeks to evade the deal, Sections 3 and 4 of the Act often require a court to stay litigation and compel arbitration ‘accord[ing to] the terms’ of the parties’ agreement. But this authority doesn’t extend to all private contracts, no matter how emphatically they may express a preference for arbitration.

Notwithstanding, New Prime argued that the initial determination of whether the FAA applies under Section 1 should be determined by the arbitrator under the agreement’s delegation clause. The Court recognized that a delegation clause “gives an arbitrator authority to decide even the initial question whether the parties’ dispute is subject to arbitration.” (citing Rent-A-Center, West, Inc., v Jackson, 561 U.S. 63, 68-69 (2010)). Nevertheless, the Court found that a delegation clause is “merely a specialized type of arbitration agreement” and a court may only enforce a delegation clause if it appears in a “written provision in . . . a contract evidence a transaction involving commerce” under Section 2 of the FAA. If there is a question of whether the Section 1 exclusion applies, however, that is a decision for a court in the first instance before ordering arbitration.

As noted above, the Court was unpersuaded based on its review of legislative history that the carve out in Section 1 was intended to cover only contracts establishing an employer-employee relationship; it may apply to agreements establishing an independent contractor relationship as well.

The information is written by Attorney H. Wayne Young who is a partner in the Labor and Employment Pratice Group at Friday, Eldredge & Clark. 

This is not a substitute for legal advice and should be considered for general guidance only. For more information or if you have further questions, please contact one of our Labor and Employment Attorneys.