Business-Minded Legal Solutions

SCOTUS to rule on arbitration and independent contractor issue

Employment contracts are often subject to the Federal Arbitration Act (FAA). This law encourages the resolution of legal issues through the use of arbitration instead of traditional litigation.

An issue arises: Does the law apply to independent contractors in the transportation industry?

Although often used in employment contracts, Section 1 of the FAA specifically exempts workers in the transportation industry. The courts had interpreted this section of the law to exempt employees, not independent contractors. The Supreme Court of the United States (SCOTUS) has agreed to hear a case that questions this application and whether or not it should extend to independent contractors.

In this case, New Prime Inc. v. Oliveira, an independent contractor agreed to transport freight for a trucking company. As part of the agreement, the contractor would address any dispute through the use of arbitration. The contractor sued the trucking company, claiming he was an employee not a contractor and should have received additional payment and benefits. He also argued the court should decide the issue of arbitration, not an arbitrator.

A bit of concern: What will SCOTUS hold?

The lower courts agreed with the independent contractor, noting “contracts of employment” include independent contractor agreements. As such, the United States District Court for the District of Massachusetts held the claim was exempt from the FAA and could move forward through traditional litigation in court, not arbitration.

SCOTUS will take this into consideration when making its decision, slotted for June. If it holds that these contracts are exempt from the FAA, independent contractors throughout the country could pursue claims in the courtroom.