Rarely does a Supreme Court case grip the trucking industry like the recent case of New Prime Inc. v Oliveira. With the conservative tilt of the Supreme Court leading many industry insiders to believe that they would rule in favor of the corporate entity in this case, the surprise when the ruling came down was widespread.
The basis for this case stemmed from trucking companies that use owner-operator independent contractors. Trucking companies – whether for better or worse – have been able to rely on arbitration clauses within their contracts to avoid lawsuits that could morph into class action status. The lawsuit that drove the case to the Supreme Court surrounded the contention that New Prime Inc. (now known as Prime) was not paying apprentices a minimum wage.
The original class action lawsuit was filed in 2015 by Dominic Oliveira, who alleged that he and others within the company classified as independent contractors were, in fact, employees. Considering their classification, this essentially means that they were likely underpaid during the initial hiring periods, according to Oliveira. On the other side, Prime pointed to the arbitration clause in the contractor agreement, stating that the contractors could not sue, but must be forced into arbitration.
By the time the case made it to the Supreme Court, the attorneys representing the truck drivers were basing everything on the argument that the Federal Arbitration Act does not apply to contracts written up for transportation sector workers. The argument then shifted to what constituted a “worker.” Is a full-time, stated employee the only “worker” in a company, or could an independent contractor also be classified as a “worker?” According to the First Circuit Court of Appeals, they could.
With that ruling, Prime Inc. appealed to the Supreme Court, who took the case. In what surprised many, Justice Neil Gorsuch, wrote the court opinion, which came down firmly on the side of the contractors and affirmed the courts 8-0 ruling on the matter. In his opinion, Justice Gorsuch stated that there is a passage in the Federal Arbitration Act that explicitly prevents companies from forcing arbitration when it comes to certain classifications of transportation workers.
The Meaning of a Phrase
Another sticking point in the case surrounded the phrase, “contract of employment,” which is also contained within the Arbitration Act. The question at the time was, is a contract of employment one that only applies to that which is created between an employee and employer or does it also refer to contracts that transportation companies write with independent contractors?
Specifically, the court wanted to evaluate the meaning of the term. Consider this: The Federal Arbitration Act was written in 1925. Considering how much has changed since then, what was once considered a “contract of employment” might not necessarily be established precedent.
In fact, at the time that the Arbitration Act was written, a “contract of employment” simply referred to an agreement between two parties concerning work that needed to be done. Considering this reading of the Act does not discriminate between employees or contractors, it would seem the most important factor was the simple act of “agreeing to perform work.”
While the exact definition of employment has changed since 1925, with things like employer health care, tax policy, and benefits driving a new paradigm, when the Arbitration Act was written, employment pretty much referred to work, in whatever form it might take. As such, when viewing the case through the lens of the Arbitration Act, the court unanimously determined that contractors working in specific transportation fields should not be compelled into arbitration.
The attorney representing Prime, of course, expressed disappointment with the ruling and openly speculated whether it was right for the court to stick to a precedent laid out in an act written nearly a century ago, rather than, as he put it, evolve with “the law of business and culture.”
Reaction on Both Sides
Many within the trucking industry were watching this case very closely and, in some cases, getting actively involved. The American Trucking Associations, as an example, filed an amicus brief in favor of Prime’s side in the case. After the decision came down, the ATA expressed their disappointment with the decision as well.
In an open letter, the ATA stated that this decision will likely make it more difficult for interested parties to resolve their conflicts through arbitration which, they argue, is fair, less expensive, and a more efficient way to resolve conflicts, when compared to lengthy class action lawsuits. If trucking companies are then forced to resolve conflicts in the courts, as opposed to arbitration, it could be that the increased costs could be passed down through the supply chain.
Finally, the ATA contended that in cases where the dispute is small-dollar and should involve a quick solution for both sides, it may go unresolved simply because there is no way to address it in a cost-effective way. In small-dollar disputes, the ATA posits that arbitration is the most efficient solution.
Conversely, the Teamsters Port Division, which has been fighting hard in California for many years regarding what “misclassified” stands for, called the ruling a “great victory” for transportation industry workers. In a press release, the Teamsters called misclassification and, by association forced arbitration, “egregious wage theft.” The press release went on to state that the Supreme Court ruling proves that employers must allow workers to have their day in court should the merits of the case warrant it.
Interestingly, from independent contractors themselves, the reaction has been mixed. Back in August, the Western States Trucking Association came out against a California Supreme Court ruling that came down against a company the court said misclassified its employees to cut costs. The WSTA, which advocates on behalf of truck drivers, argued at the time that the ruling would hamper both independent contractors and trucking companies from coming to mutually beneficial employment agreements. While the WSTA has not released a statement on the current ruling, their member base is likely split on the issue.
The Californian situation has been especially heated in light of a recent ruling by the California Labor Commission that awarded $6 million to twenty-four port truck drivers the commission deemed were misclassified. Even more, the commission for the first time issued individual joint liability against one of the company’s employees, a general manager who oversaw the truck drivers working at that company.
This is another case that will wind its way through the court system, as the company is appealing the decision. This case simply highlights the ongoing battle between the Teamsters, the Harbor Trucking Association, and the WSTA, a fight that seems to have no end in sight. Yet, with the recent Supreme Court ruling on the arbitration case, might we see a shift in momentum when it comes to California’s efforts to regulate the trucking industry within its state lines? At this point, only time will tell.
A Drawn-Out Case
In reality, the case the Supreme Court just ruled on is an issue that has been bouncing around the court system in one fashion or another for many years. Many transportation companies and transportation company law firms know that there is a risk that comes with requiring forced arbitration. Now, with the Supreme Court ruling, it has been made clear that trucking companies cannot argue that owner-operators fall outside the exemption. In the case of an independent contractor, the Federal Arbitration Act simply won’t be part of the picture.
Yet, as some of noted, the Supreme Court’s decision does not answer all the questions. There are still some grey areas where motor carriers can come to a more beneficial conclusion. For instance, fleets can still fall back on state law, where state law applies. States have varied arbitration laws, so there may be some confusion when it comes to contractors working across state lines and where the home carrier is based.
Another area that the court left ambiguous was in the instance where a motor carrier has entered into a contract with an owner-operator who is not a one-person operation. If an independent contractor is operating multiple trucks, should they still be held to the exemption or compelled into arbitration? In the end, the court did not answer this question, essentially leaving it wide open for a future court case to ultimately determine.
So, what is the ultimate takeaway for trucking companies? Whenever a big court decision comes down like this, whether it be by the Supreme Court, in federal court, or otherwise, it is important for fleets to reexamine the agreements by which they bring on, not just contractors, but employees as well. These types of cases serve as great reminders that trucking companies need to not only look out for their own interests, but for the interests of those who complete “work” for them, in whatever form that work may take.