Who decides who decides? That’s as fun to write as it is to think about.
On TV, sometimes the parties agree that Judge Judy can decide. (Here’s how that works.) But sometimes, the parties disagree over who decides. What happens then? Who decides who decides?
That’s an issue the Supreme Court is going to consider, as it relates to arbitration agreements for independent contractors in the transportation industry.
The dispute stems from an arbitration agreement between Dominic Oliviera, an independent contractor (although he’s not so sure of that), and New Prime, Inc., a trucking company. Their arbitration agreement says that all disputes go to arbitration, including those about the scope of what gets arbitrated. In other words, the arbitrator gets to decide whether something is subject to arbitration. (That’s not an unusual clause, by the way.)
Our protagonist Mr. O tried to bring a lawsuit, claiming wage and hour violations by New Prime. In response, New Prime pointed to the contract and said the issue had to be arbitrated. Not to be outwitted, however, Mr. O then pointed to an exception in the Federal Arbitration Act (FAA). The FAA is the federal law favoring arbitration of disputes, but the FAA contains an exception. The FAA doesn’t apply to employees in the transportation industry.
I hope I haven’t bored you because here’s where it gets interesting.
If the FAA exception applies, Mr. O doesn’t have to arbitrate and he can go to court with his wage and hour claims instead.
But the exception only applies (it seems) if he is an employee. If he’s an independent contractor, the FAA should still apply, which means that New Prime can still force him into arbitration.
Now here’s where it gets really weird.
The agreement says that the arbitrator gets to decide whether the matter is subject to arbitration. But Mr. O says he’s an employee and therefore he’s not bound by the arbitration agreement. If he’s not bound by the arbitration agreement, then New Prime can’t force him to go to the arbitrator to decide whether the dispute is subject to arbitration. So, who decides who decides?
Still with me? Here’s the bottom line. There are two important questions that the Supreme Court has agreed to consider in this case:
(1) Whether a dispute over applicability of the Federal Arbitration Act’s Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause; and
(2) whether the FAA’s Section 1 exemption, which applies on its face only to “contracts of employment,” is inapplicable to independent contractor agreements.
For businesses using mandatory arbitration agreements, these are important issues.
Last week, in this post, we addressed Issue #2. But Issue #1 is also pretty important for businesses with arbitration agreements in the transportation industry. If the validity of those agreements is contested, who decides whether they are valid?
If the arbitrator gets to decide what is subject to arbitration, the realist deep inside you (he’s roommates with the pessimist) expects that the arbitrator will keep the case. In other words, the most likely ruling by the arbitrator — who is paid by the parties by the hour to conduct the arbitration — is that the matter is going to be subject to arbitration. After all, that’s what the contract says, and if the contract didn’t apply, then the arbitrator never would have gotten involved in the first place.
This case won’t be decided until next year.
For more information on independent contractor issues and other labor and employment developments to watch in 2018, join me in Cincinnati on March 28 for the 2018 BakerHostetler Master Class on Labor Relations and Employment Law: A Time for Change. Attendance is complimentary, but advance registration is required. Please email me if you plan to attend, email@example.com, and list my name in your RSVP so I can be sure to look for you.
© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.