Nearly one million men and women in the United States are employed by interstate transportation companies as long-distance truck drivers. The companies which employ these drivers range from national transportation operations to regional “mom and pop” businesses based right here in north Louisiana.
Of those roughly one million truck drivers on the road today, it is estimated that over 500,000 drivers are independent contractors. Many of those independent contractors signed agreements with their companies which contain arbitration clauses. An arbitration clause typically states that some or all disputes arising under the agreement must be submitted to binding arbitration and cannot be brought in court.
Arbitration does not involve the filing of a lawsuit. Arbitration is less formal, and the procedures are simplified. One of the key distinctions between arbitration and litigation is that the chosen arbitrator – as opposed to a judge or jury – will hear both sides of the dispute and render a decision. Most decisions by an arbitrator are binding, meaning that the parties must accept the arbitrator’s decision and cannot later seek to resolve the same dispute in court.
For years, the Supreme Court enforced arbitration agreements between employers and employees in accordance with the Federal Arbitration Act. However, the Act specifically exempts certain segments of the workforce, including interstate transportation workers, from being bound by arbitration agreements. Most courts have read the Act to mean that only regular employees, not independent contractors, were exempt from arbitration. Thus, binding arbitration clauses were generally enforceable against independent contractors in the interstate transportation industry.
In January of 2019, in the case of New Prime Inc. v. Oliveira, the Supreme Court unanimously ruled for the first time that the Act’s arbitration exemption also applied to independent contractors. The Court’s opinion was written by recently-appointed Justice Neil Gorsuch. Justice Gorsuch noted that when Congress passed the Act, in the 1920s, there was no distinction between an independent contractor and any other types of worker. Accordingly, Justice Gorsuch and the Court reasoned that the interstate transportation exemption applied both to employees and independent contractors.
In conclusion, the Court’s ruling in New Prime represents a significant shift in the law. Under this new ruling, interstate transportation companies will now find that arbitration agreements they signed with their independent contractors are invalid. The invalidity of these agreements could lead to a flood of lawsuits against those interstate transportation companies. Further, because arbitration generally permits disputes to be resolved with less litigation expense, the Court’s ruling could raise legal costs for interstate transportation companies. Other possible effects of this ruling, such as the need for the companies to pass on the higher costs associated with increased litigation to consumers, remain to be seen at this time.
Luke Whetstone is an associate for Cook Yancey King and Galloway. He primarily focuses his practice on labor and employment, commercial litigation, professional liability, and commercial carrier liability.