Federal Arbitration Act

The Supreme Court Got it Half Right in New Prime

Andrew Strom

Andrew Strom is an Associate General Counsel of Service Employees International Union, Local 32BJ in New York, NY.

When the Supreme Court issued its decision in New Prime Inc. v. Oliveira last week, it was reported as a win for workers.  While that’s true, it was more like winning a consolation game after a bad call by a ref deprived you of your rightful place in the championship.  New Prime should have been a victory for all workers who are misclassified as independent contractors, but because of wretched 2001 Supreme Court decision, the victory was limited to workers in the transportation sector.

New Prime involved an attempt by a trucking company to compel its drivers to arbitrate their claim that the company had failed to pay them the minimum wage.  In seeking to compel arbitration, New Prime relied upon the Federal Arbitration Act (FAA).  But, 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.”  In 2001, in Circuit City v. Adams, by a five-to-four margin, the Supreme Court had held that this exemption only applies to transportation workers.  The issue in New Prime was whether the term “contract of employment” covers a situation where a worker is hired as an independent contractor.  In order to decide that question, the Court focused on what the term “contract of employment” meant when Congress enacted the FAA in 1925.  The Court concluded that “[a]t that time, a ‘contract of employment’ usually meant nothing more than an agreement to perform work.  As a result, most people then would have understood [the FAA] to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.”

The Court clearly reached the right result in New Prime.  But, I had to stop halfway through the opinion to tear my hair out when I saw that the Justices unanimously agreed that Congress carved out an exemption for “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” because “Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers.  And it seems Congress ‘did not wish to unsettle’ those arrangements in favor of whatever arbitration procedures the parties’ private contracts might happen to contemplate.”  This is ahistorical nonsense.  In fact, in Circuit City, Justices Stevens and Souter carefully described the real reasons why Congress used that phrase.  As Justice Souter explained, “When the Act was passed … our case law indicated that the only employment relationships subject to the commerce power were those in which workers were actually engaged in interstate commerce….  Thus, by using ‘engaged in’ for the exclusion, Congress showed an intent to exclude to the limit of its power to cover employment contracts in the first place….”  Justice Stevens detailed the legislative history behind the exclusion.  An earlier version of the bill was opposed by organized labor, and then the exclusion was added to address those concerns.  The Secretary of Commerce suggested that Congress adopt the exclusion provision “[i]f objection appears to the inclusion of workers’ contracts in the law’s scheme.”

In New Prime, the Court looked at contemporaneous dictionaries to figure out what Congress meant in 1925 when it used the phrase “contracts of employment.”  Ironically, in Circuit City, the Court refused to consider whether the phrase “engaged in … interstate commerce,” might have had a different meaning in 1925 than it does today.  Instead, the Court adopted an approach that “affords objective and consistent significance to the meaning of the words Congress uses when it defines the reach of a statute.”  But, apart from the argument about whether we should look at current or historic definitions of words, the real problem is what Justice Stevens described as “[a] method of statutory interpretation that is deliberately uniformed.”  In interpreting arguably ambiguous phrases, the Court ought to consider all of the available evidence, such as the Congressional testimony the majority rejected in Circuit City.  Legislative history may often be inconclusive where conflicting evidence points in opposite directions.  And, where there are conflicts in the legislative history, it makes sense to give the most weight to committee reports.  But, in the case of the exclusion for employment contracts, there is not a shred of evidence that Congress intended the FAA to apply to any subgroup of employment contracts.  In fact, if Congress had passed a law in 1925 giving federal courts jurisdiction to enforce employment contracts in factories, mines, and other workplaces, the courts would have struck it down as beyond Congress’s authority, as the Supreme Court did when it struck down a child labor law in 1918.

The employer in New Prime had argued that the Court should order arbitration to further the FAA’s policy favoring arbitration agreements.  In rejecting this argument, the Court noted that

often and by design it is ‘hard fought compromise,’ not cold logic that supplies the solvent needed for a bill to survive the legislative process.  If courts felt free to pave over bumpy statutory texts in the name of more expeditiously advancing a policy goal, we would risk failing to take account of legislative compromises essential to a law’s passage and, in that way, thwart rather than honor the effectuation of congressional intent.

For workers outside the transportation industry, it’s hard to read this statement as anything other than a cruel joke.  Congress did make a compromise when it enacted the FAA in 1925.  It passed a law authorizing federal courts to enforce commercial arbitration agreements while excluding arbitration agreements contained in “contracts of employment.”  It’s too bad that the Court stubbornly refuses to acknowledge this.

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