Source: http://loreelawfirm.com/blog/new-prime-oliveira-federal-arbitration-act-section-one-contracts-employment-exemption-includes-independent-contractors/
Timestamp: 2019-04-18 22:46:51+00:00

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February 1st, 2019 Applicability of Federal Arbitration Act, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Statutory Interpretation and Construction, United States Court of Appeals for the First Circuit, United States Supreme Court No Comments » By Philip J. Loree Jr.
Section 1 of the Federal Arbitration Act (the “FAA”) exempts from the FAA’s scope disputes involving “contracts of employment of . . . workers engaged in . . . interstate commerce.” 9 U. S. C. § 1. Does the FAA apply to an agreement to arbitrate disputes between an individual trucker and an interstate trucking company if the contract between them establishes an independent contractor relationship, not an employer-employee one?
In New Prime Inc. v. Oliveira, 586 ___ U.S. ___, slip op. (Jan. 15, 2019), the United States Supreme Court said that the FAA does not apply to such contracts. That was so, the Court explained, because in 1925, the year Congress enacted the FAA, the term “contracts of employment” was ordinarily understood to include not only contracts establishing an employer-employee (or master and servant) relationship, but also independent contractor relationships. Slip op. at 7. Consequently, a court does not have authority under the FAA to stay litigation under FAA Section 3—or to compel arbitration under FAA Section 4—if the parties’ agreement evidences such a “contract of employment,” including a contract of employment that establishes an independent contractor relationship rather than an employer-employee one. Slip op. at 6, 7 & 15.
Today we shift our focus to the merits of the Section 1 exemption question that the U.S. Supreme Court proceeded to resolve.
New Prime was a dispute between a truck driver and a trucking company.
The relationship between the two was established by a written contract which, at least in form, established an independent contractor, rather than an employer-employee relationship.
The trucker commenced a federal-court class action, which alleged that, irrespective of what the trucking company called its drivers, the trucking company “treat[ed] them as employees and fail[ed] to pay…statutorily due minimum wage.” Slip op. at 2.
The trucking company asked the district court to compel arbitration of the dispute. In response the trucker contended that his contract was outside the scope of the FAA because it was a “contract of employment of . . . [a] worker engaged in foreign or interstate commerce.” 9 U.S.C. § 1. Thus, said the trucker, the FAA “supplied the district court with no authority to compel arbitration….” Slip op. at 2.
The district court and the United States Court of Appeals for the First Circuit found in favor of the trucker.
The First Circuit “held that §1’s exclusion of certain ‘contracts of employment’ removes from the Act’s coverage not only employer-employee contracts but also contracts involving independent contractors.” Slip op. at 3. Accordingly, irrespective of whether the parties’ agreement established an employer-employee or independent contractor relationship, the district court lacked authority under the FAA to compel arbitration. Slip op. at 3.
Brett Michael Kavanaugh played no part). Associate Justice Ruth Bader Ginsburg penned a brief concurring opinion.
What does the term “contracts of employment” mean?
The parties agreed that the trucker was a “worker engaged in…interstate commerce” within the meaning of Section 1, and the trucker was “willing to assume (but not grant) that his contracts with New Prime establish only an independent contractor relationship.” Slip op. at 6.
The question before the Court thus boiled down to one of statutory interpretation, namely, “[w]hat does the term ‘contracts of employment’ mean?” Slip op. at 6.
But the question was not what the term “contracts of employment” might mean in the legal parlance of today, but what it meant in 1925, when Congress passed the FAA. See slip op. at 7. For, explained the Court, “[i]t’s a ‘fundamental canon of statutory construction that words generally should be interpreted as taking their ordinary . . . meaning . . . at the time Congress enacted the statute.” Slip op. at 6-7 (citations and quotations omitted). “[I]f,” said the Court, “judges could freely invest old statutory terms with new meanings, we would risk amending legislation outside the single, finely wrought and exhaustively considered, procedure the Constitution commands.” Slip op. at 7 (citation and quotation omitted).
The Court acknowledged that, under the so-called “reference canon,” “statutes may sometimes refer to an external source of law and fairly warn readers that they must abide that external source of law, later amendments and modifications included.” Slip op. at 7 (citation omitted). But, added the Court, no such circumstances were present, and no one “has…suggested any other appropriate reason that might allow us to depart from the original meaning of the statute at hand.” Slip op. at 7.
It was difference between the original meaning of “contracts of employment”—i.e, what it was generally understood to mean in 1925—and what it may generally be understood to mean today—that “[held] the key to the case.” Slip op. at 7. “To many lawyerly ears today,” explained the Court, “the term ‘contracts of employment’ might call to mind only agreements between employers and employees (or what the common law sometimes called masters and servants).” Slip op. at 7. “Suggestively,” said the Court, “at least one recently published law dictionary defines the word ‘employment’ to mean ‘the relationship between master and servant.’” Slip op. at 7 (quoting Black’s Law Dictionary 641 (10th ed. 2014)).
“But,” said the Court, “this modern intuition isn’t easily squared with evidence of the term’s meaning at the time of the Act’s adoption in 1925.” Slip op. at 7. Back then the term “‘contract of employment’” usually meant nothing more than an agreement to perform work.” Slip op. at 7. Consequently, “most people then would have understood §1 to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.” Slip op. at 7.
The Court next discussed in detail the “evidence support[ing]” its “conclusion.” Slip op. at 7-14. Readers interested in a detailed discussion of that evidence, including quotes from the many authorities cited, should review the Court’s well-written scholarly opinion, including its footnotes.
“Contracts of employment” was not “defined in any of the (many) popular or legal dictionaries.” Slip op. at 7-8. That, said the Court, is “a first hint the phrase wasn’t then a term of art bearing some specialized meaning.” Slip op. at 8.
In 1925 dictionaries “consistently afforded the word ‘employment’ a broad construction, broader than may be often found in dictionaries today.” Slip op. at 8. The term did not “distinguish between different kinds of work or workers[,]” and “all work was treated as employment,” irrespective of whether the work was done as part of a master-servant relationship or an independent contractor relationship. Slip op. at 8.
Federal and state statues and caselaw “confirm[ed]” “[w]hat the dictionaries suggest[.]” The “Court’s early 20th-century cases used the phrase ‘contract of employment’ to describe work agreements involving independent contractors[,]” as did “[m]any state court cases.” Slip op. at 8. The same was true of “a variety” of federal and state statutes. Slip op. at 8-9. The Court saw in contemporaneous legal authorities “no evidence that a ‘contract of employment’ necessarily signaled a formal employer-employee or master servant relationship.” Slip op. at 9.
The use of the term “workers” in Section 1 provided additional support for the Court’s conclusion. See slip op. at 9-10. Section 1 excludes from the FAA “contracts of employment of . . . any . . . class of workers engaged in foreign or interstate commerce.” 9 U. S. C. §1 (emphasis added). Had Congress intended to limit Section 1’s exclusion to employer-employee or master-servant relationships, then the “natural choice” of words would have been “employees” or “servants,” not “workers.” Slip op. at 9-10. But “Congress spoke of ‘workers,’ a term that everyone agrees easily embraces independent contractors.” Slip op. at 10. While the Court acknowledged “[t]hat word choice may not mean everything,” it did “supply further evidence still that Congress used the term ‘contracts of employment in a broad sense to capture any contract for the performance of work by workers.” Slip op. at 10 (emphasis in original).
The trucking company’s arguments “[m]ainly” sought “to shift the debate from the term ‘contracts of employment’ to the word ‘employee.’” Slip op. at 10. To that end the trucking company focused on how “the law often distinguishes between employees and independent contractors.” Slip op. at 10. “Employees,” explained the Court, are generally understood as those who work ‘in the service of another person [the employer] under an express or implied contract of hire, under which the employer has the right to control the details of work performance.’” Slip op. at 10 (quoting Black’s Law Dictionary, at 639). By contrast, “independent contractors are sometimes described as those ‘entrusted to undertake a specific project but who [are] left free to do the assigned work and to choose the method for accomplishing it.’” Slip op. at 10 (quoting Black’s Law Dictionary, at 888).
The trucking company asserted that as of 1925 the terms “employee” and “independent contractor” had assumed the distinct legal meanings they have today, and that, accordingly, “‘contracts of employment’ should be understood to refer only to relationships between employers and employees.” Slip op. at 10 (emphasis in original).
The trucker argued that although the term “employment” has been in use for many centuries, “the word ‘employee’ only made its first appearance in English in the 1800s.” Slip op. at 10 (citation omitted). At the time, “the word from which [employee] derived, ‘employ,’ simply meant to ‘apply (a thing) to some definite purpose.’” Slip op. at 11 (quoting 3 J. Murray, A New English Dictionary on Historical Principles 129 (1891)). Furthermore, “even in 1910, Black’s Law Dictionary reported that the term ‘employee’ had only ‘become somewhat naturalized in our language.’” Slip op. at 11 (quoting Black’s Law Dictionary 421 (2d ed. 1910)).
The term “employee” “eventually came into wide circulation and came to denote those who work for a wage at the direction of another.” Slip op. at 11.
The reason that was so was because the word did not “suffer from the same ‘historical baggage’ of the older common law term ‘servant,’ and because it proved useful when drafting legislation to regulate burgeoning industries and their labor forces in the early 20th century.” Slip op. at 11.
The “development of the term ‘employee’ may have come to influence and narrow our understanding of the word ‘employment’ in comparatively recent years and may be why today it might signify to some a relationship between master and servant.” Slip op. at 11 (quotation omitted).
But, if anything, the parties’ “extended etymological debate” simply “persuade[d]” the Court that “care is called for.” Slip op. at 12. Though the terms “employee” and “employment” “may share a common root and intertwined history[,]” “they also developed at different times and in at least some different ways.” Slip op. at 11.
The “only question in this case,” said the Court, “concerns the meaning of the term ‘contracts of employment” in 1925.” Slip op. at 11 (emphasis in original). Irrespective of what “employee” may have meant in 1925, “and however it may have later influenced the meaning of ‘employment,’ the evidence before” the Court “remain[ed] that, as dominantly understood in 1925, a contract of employmentdid not necessarily imply the existence of an employer-employee or master-servant relationship.” Slip op. at 11.
The trucking company cited in support of its argument concerning “contracts of employment” Coppage v. Kansas, 236 U. S. 1, 13 (1915), and like cases, each of which “used the phrase ‘contracts of employment’ to describe what today we’d recognize as agreements between employers and employees.” Slip op. at 12. But these cases demonstrated only that a contract to perform work that established an employer-employee or master-servant relationship would have been subsumed within whatever universe was understood in 1925 to constitute “contracts of employment.” See slip op. at 12. That point was uncontroversial, and “documenting” it “does nothing to negate the possibility that ‘contracts of employment’ also embraced agreements by independent contractors to perform work.” Slip op. at 12.
The trucking company was able to cite a “handful of early 20th-century legal materials that seem[ed] to use the term “contracts of employment” to refer exclusively to employer-employee agreements,” but the Court explained that, “based on the record amassed before” it, “these authorities appear to represent at most the vanguard, not the main body, of contemporaneous usage.” Slip op. at 12-13 (emphasis in original).
That argument, said the Court, “rest[ed] on a precarious premise[,]” for in 1925 “shipboard surgeons who tended injured sailors were considered ‘seamen’ though they likely served in an independent contractor capacity.” Slip op. at 13.
Likewise, “railroad employee” appears to have had a broader meaning in 1925 than it might today. For “the Railroad Labor Board interpreted the word ‘employee’ in the Transportation Act of 1920 to refer to anyone ‘engaged in the customary work directly contributory to the operation of the railroads.’” Slip op. at 13. The Court further noted that “the Erdman Act, a statute enacted to address disruptive railroad strikes at the end of the 19th century, seems to evince an equally broad understanding of ‘railroad employees.’” Slip op. at 13-14.
The trucking company argued that the liberal federal policy in favor of arbitration warranted the outcome for which it argued, but the Court rejected that argument. See slip op. at 14.
As the Court explained, “Congress adopted the Arbitration Act in an effort to counteract judicial hostility to arbitration and establish ‘a liberal federal policy favoring arbitration agreements.’” Slip op. at 14 (quoting Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1, 24 (1983)).
The trucking company argued that this policy required the Court to enforce the parties’ arbitration agreement as written and according to its terms. But the Court said that it could not, under the guise of advancing a statute’s policy, effectively amend the statute so that it might better implement the policies it was enacted to promote. “[O]ften and by design,” said the Court, it is ‘hard fought compromise,” not cold logic, that supplies the solvent needed for a bill to survive the legislative process.” Slip op. at 14 (quoting Board of Governors, FRS v. Dimension Financial Corp., 474 U. S. 361, 374 (1986)). Were “courts. . . free to pave over bumpy statutory texts in the name of more expeditiously advancing a policy goal, we would risk failing to ‘take[e] . . . account of’ legislative compromises essential to a law’s passage and, in that way, thwart, rather than honor, ‘the effectuation of congressional intent.’” Slip op. at 14 (quoting Dimension Financial Corp., 474 U.S. at 374). By enforcing Section 1’s limitation on the FAA’s scope, the Court “‘respect[ed] the limits up to which Congress was prepared’ to go when adopting the [FAA].” Slip op. at 14 (quoting United States v. Sisson, 399 U. S. 267, 298 (1970)).
The trucking company argued that, “[e]ven if the statute doesn’t supply judges with the power to compel arbitration in this case,” the Court “should order it anyway because courts always enjoy the inherent authority to stay litigation in favor of an alternative dispute resolution mechanism of the parties’ choosing.” But the Court declined to hear that argument because “[t]he courts below did not address it and [it] granted certiorari only to resolve existing confusion about the application of the [FAA], not to explore other potential avenues for reaching a destination it does not.” Slip op. at 15.
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This entry was posted on Friday, February 1st, 2019 at 8:52 pm	and is filed under Applicability of Federal Arbitration Act, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Statutory Interpretation and Construction, United States Court of Appeals for the First Circuit, United States Supreme Court. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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