In Oliveira v. New Prime, Inc., 2017 WL 1963461 (May 12, 2017), the First Circuit addressed an issue of first impression regarding the Federal Arbitration Act (FAA).   The First Circuit denied a motion to compel arbitration under the FAA of a class action complaint after it interpreted Section One of the FAA to exempt as “contracts of employment” those contracts that purport to create an independent-contractor relationship.

Mr. Oliveira filed a class action suit against New Prime, Inc. (Prime), an interstate trucking company, alleging that Prime violated the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-219, the Missouri minimum-wage statute, and other labor laws.  Prime moved to compel arbitration under the FAA, asserting that Oliveira had entered into Independent Contractor Operating Agreement with Prime to work as an owner-operator truck driver.  Oliveira responded that the motion to compel arbitration should be denied because, inter alia, the contract is exempted from the FAA under § 1 as one involving transportation workers.  Further, Oliveira argued that the question of the applicability of the § 1 exemption was one for the court to decide, and not an arbitrator.  Prime countered that the § 1 exemption does not include independent-contractor agreements, and that whether the exemption applies is a question for the arbitrator.

The district court concluded that the question of the applicability of the § 1 exemption was one for the court to decide.  And, the district court determined that it could not yet answer whether the exemption applied because (1) the language of § 1 does not extend to independent contractors, and (2) discovery was needed on the issue of whether Oliveira was an employee of Prime or an independent contractor before the court could decide if § 1 exempted the contract.  The district court, therefore, denied Prime’s motion to compel arbitration under the FAA and permitted the parties to conduct discovery on Oliveira’s employment status.

The First Circuit began by analyzing whether the district court or an arbitrator should decide whether the FAA applies to the dispute.  The parties presented two competing authorities on the issue of whether the FAA’s § 1 exemption should be decided by an arbitrator or the court: the 8th Circuit’s decision in Green v. SuperShuttle International, Inc., 653 F.3d 766 (2011), that whether the § 1 exemption applies is a question of arbitrability that must be decided by the arbitrator, and the 9th Circuit’s finding in In re VanDusen, 654 F.3d 838 (2011), that whether the § 1 exemption applies is a question of “whether the FAA confers authority on the district court to compel arbitration,” and not a question of arbitrability.  The 1st Circuit, finding the 9th Circuit’s analysis regarding the authority of the district court to act under a federal statute more persuasive, held that “the question of whether the § 1 exemption applies is an antecedent determination that must be made by the district court before arbitration can be compelled under the FAA.

Next, the First Circuit analyzed the question of whether the § 1 exemption extends to transportation-worker agreements that establish or purport to establish independent-contractor relationships.  The § 1 exemption provides that nothing contained in the FAA “shall apply to contracts of employment . . . of workers engaged in foreign or interstate commerce.”  9 U.S.C. § 1.  Further, the Supreme Court has declared that § 1 of the FAA exempts only “contracts of employment of transportation workers.”  Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001).  Although other courts have previously found that the exemption merely does not extend to independent contractor relationships, the First Circuit felt the need to decide the issue for itself based upon the ordinary meaning of the statutory text, “contract of employment.”

After determining the ordinary meaning of “contract of employment,” the First Circuit found that the phrase simply means “agreements to do work,” which can, in fact, encompass agreements of independent contractors to perform work.  What is more, Prime had conceded the point that Oliveira was a “transportation worker” within the meaning of the § 1 exemption.  With the ordinary meaning and Prime’s concession at hand, the First Circuit concluded that the contract between Prime and Oliveira, as an agreement to perform work, is exempt from the FAA.

In sum, the First Circuit found that, when confronted with a motion to compel arbitration under § 4 of the FAA, the district court, and not the arbitrator, shall decide whether the exemption afforded under § 1 applies to the contract at issue.  Additionally, the First Circuit held that transportation-worker agreements that establish, or purport to establish, independent-contractor relationships are, indeed, “contracts of employment” within the meaning of the § 1 exemption, and thus, are excluded from the FAA’s reach.

Of note, however, is the First Circuit’s decision in its footnote 21 not to rule on an argument presented by Prime contending that even if the district court is not able to compel arbitration under the FAA because the § 1 exemption applies, Prime could still ask the district to compel arbitration under the parties’ arbitration agreement on other grounds, such as state law.  The decision not to rule on this contention could present issues for similar situations in the future.

This summary was prepared by Ryan Corrigan, a second-year law student at the University of Missouri School of Law.