The Federal Arbitration Act has been in effect for nearly 100 years (92, to be precise). Nevertheless, the First Circuit found two issues of first impression to address this month. In Oliveira v. New Prime, Inc., 2017 WL 1963461 (1st Cir. May 12, 2017), the court refused to compel arbitration of a class action complaint, because it interpreted Section One of the FAA to exempt contracts for independent transportation contractors.
Mr. Oliveira brought a putative class action suit against the interstate trucking company for which he worked–Prime–for violating the Fair Labor Standards Act, Missouri minimum wage statute, and other labor laws. Prime moved to compel arbitration under the FAA. In response, Plaintiffs argued that the FAA had no application to their contracts because they are transportation workers. Prime argued that that issue–the applicability of the FAA–should be decided by an arbitrator. Furthermore, it argued that the FAA does not exempt independent contractors and these workers had been classified as independent contractors. The district court agreed it must decide the threshold question, but then ordered discovery on the question of whether the named plaintiff was an independent contractor.
On appeal, the First Circuit decided to tackle both the tough legal issues head on, and not wait to see if discovery mooted either of them.
First, it analyzed whether an arbitrator or a court should decide whether the FAA applies to a plaintiff’s contract. It noted that the 8th Circuit had concluded an arbitrator should decide, while the 9th Circuit had concluded a court should decide. Finding the 9th Circuit’s analysis more persuasive, it held that “the question of whether the [Section] 1 exemption applies is an antecedent determination that must be made by the district court before arbitration can be compelled under the FAA.”
Second, it interpreted the language in Section 1 in order to answer the question of whether the exemption “extends to transportation-worker agreements that establish or purport to establish independent-contractor relationships.” (Recall that the truckers were arguing they were exempt from the FAA, whether they were independent contractors or not.) The FAA says it does not apply to “contracts of …any other class of workers engaged in foreign or interstate commerce,” and the Supreme Court interpreted that language in 2001 to mean that “contracts of employment of transportation workers” are exempted from the FAA. After noting that multiple courts have found the exemption does not extend to independent contractor relationships, the First Circuit brushed that aside with this gem: “Interpreting a federal statute is not simply a numbers game.”
Instead of playing a numbers game, the First Circuit played a “pull out the antique dictionary” game. It looked at definitions of contracts of employment from 1925, when the FAA was enacted, and concluded the phrase means any agreement to perform work, and is broad enough to include independent contracting. Therefore, because Prime had conceded Mr. Oliveira was a transportation worker, “the contract in this case is excluded from the FAA’s reach.”
However, the court inserted a footnote allowing that a state arbitration act may provide a basis to compel arbitration in a future scenario like this one. . . which raises interesting preemption issues.