The U.S. Supreme Court may have just signaled a detour from last year’s big win for employers regarding compelled arbitration.
Last year, the Supreme Court ruled in Epic Systems Corp. v. Lewis that the Federal Arbitration Act (“FAA”) permits employers to require employees to submit their legal claims to private arbitration (rather than filing lawsuits), and to force them to pursue those arbitrations individually rather than as participants in a class actions. Employers everywhere hailed this as a road map toward swifter resolution of employment claims without the complexities of courtroom litigation or mass arbitration actions.
However, the Supreme Court may have just pumped the brakes on that line of thinking. In a case entitled New Prime Inc. v. Oliveira, they determined that certain transportation workers are exempt from the FAA and cannot be forced to arbitrate their claims. Specifically, they noted that the FAA does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” New Prime’s over-the-road truckers, who alleged that they had been misclassified as independent contractors, were clearly crossing state lines in hauling their freight and therefore could not be compelled to bring those claims in separate private arbitrations under the FAA.
New Prime argued that the exclusion for “contracts of employment…of any other class of workers engaged in foreign or interstate commerce” applied only to actual employees and did not cover independent contractors. The Court reasoned that Congress knew how to use the word “employees” and that choosing the term “workers” instead indicated that they intended to exclude a broader class of individuals (and not just employees) from the FAA. Therefore,
While the Epic Systems case remains good law, the Oliveira decision appears to signal the Supreme Court’s intent to modify it a bit to narrow the FAA’s application.
The key question is just how narrowly the FAA will be applied in the future, and the answer probably will not come until the Supreme Court tells us which definition of “workers engaged in foreign or interstate commerce” they intend to use. In some instances, that term is limited just to those who cross state lines when engaged in their business activities. At other times, the term includes those who work on or handle goods that are within the “stream” of interstate commerce even if the employee never physically crosses from one state to the other.
Indeed, under the Fair Labor Standards Act (FLSA), employees are often considered to have engaged in interstate commerce even if they merely use the phone or the internet to order products or supplies from out of state. It seems unlikely that the Supreme Court will apply that interpretation, however, since that would exempt the vast majority of U.S. workers from the FAA’s application.
It remains to be seen how big a road block the Supreme Court just set up for the use of mandatory arbitration agreements for employees. Look for more signs ahead.