Archis A. Parasharami is a partner and Daniel E. Jones is a senior litigation associate in the Washington, D.C. office of Mayer Brown; both are members of the firm’s Supreme Court and Appellate practice group.

 

Nantiya Ruan is Professor of the Practice of Law at the University of Denver’s Sturm College of Law; she is also of counsel at Outten & Golden LLP.

*Ed. Note: This WLF On the Merits publication provides a concise and substantive analysis of an important case on appeal through simulated majority and dissenting court opinions. New Prime, Inc. v. Oliveira is pending before the U.S. Supreme Court.  The justices will hear oral arguments on October 3, 2018.

Questions Presented: Whether the Federal Arbitration Act’s (FAA) § 1 exemption, which applies only to “contracts of employment,” applies to independent contractor agreements.

Summary of the Case: The FAA does not apply “to contracts of employment” for any “class of workers engaged in . . . interstate commerce.” 9 U.S.C. § 1. Respondent is an independent contractor whose agreement with Petitioner, the interstate trucking company New Prime, Inc., includes a mandatory arbitration provision requiring Respondent to arbitrate all workplace disputes with Petitioner on an individual basis. Invoking the FAA’s § 1 exemption, Respondent filed a putative class action in the District of Massachusetts. After determining that the applicability of a § 1 exemption is a threshold issue for the court, the district court denied Petitioner’s motion to compel arbitration, finding the factual record and contract terms sufficiently ambiguous to warrant “factual discovery” on that question.

The First Circuit affirmed. The appeals court held that, notwithstanding a valid delegation clause, the applicability of the § 1 exemption is a threshold question for the court, not the arbitrator, to decide. The panel majority then decided a question the district court did not reach, holding that the ordinary meaning of “contracts of employment” in § 1 includes “transportation-worker agreements that establish or purport to establish independent-contractor relationships.” Accordingly, the court concluded that the contract between the parties falls within the § 1 exemption. Judge Barbadoro dissented from that part of the panel’s opinion.

Judgment for Petitioner by Archis A. Parasharami & Daniel E. Jones

The FAA embodies a “liberal federal policy favoring arbitration agreements.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991). But § 1 of the FAA exempts from its coverage “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The court of appeals held that the phrase “contracts of employment” includes contracts in the interstate transportation industry establishing independent contractor relationships. That interpretation of the exemption is inconsistent with the text and structure of § 1 as well as the historical context in which it was enacted. We hold that § 1’s narrow exemption does not reach independent contractor agreements, and we reverse the judgment below and remand for further proceedings consistent with this opinion.

In holding that § 1’s exemption is limited to “contracts of employment of transportation workers,” we explained that § 1 must be given a “narrow construction” and a “precise reading.” Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 118-19 (2001). Especially in light of those principles, the phrase “contracts of employment” means what it says: a contract between an employer and an employee, not an agreement with an independent contractor to perform work.

When the FAA was enacted in 1925, as well as today, the phrases “contract of employment” and “employment contract” each referred to a contract between an employer and an employee. Failing to follow our instruction to give “the § 1 provision . . . a narrow construction,” Circuit City, 532 U.S. at 118, the court of appeals instead relied on dictionary definitions of the broader verb “employ” and inapposite definitions of the term “independent contractor” that referred to the contractor “exercising an independent employment.” By treating the word “employment” as synonymous with “work,” the court of appeals ignored that “the distinction between employees and independent contractors has deep roots in our legal tradition,” O’Hare Truck Serv., Inc. v. City of Northlake, 518 U.S. 712, 721-22 (1996), and was settled at the time of the FAA’s enactment.

As we cautioned last Term, “a statute’s meaning does not always turn solely on the broadest imaginable definitions of its component words.” Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1631 (2018). “Linguistic and statutory context also matter.” Ibid. Here, the context points strongly against the sweeping interpretation of § 1 that Respondent advocates. Section 1’s exemption was designed to avoid conflicts with existing or soon-to-be-enacted federal statutes that provided their own dispute-resolution mechanisms for certain kinds of employees, such as “seamen,” “railroad employees,” and “employees” of “air carriers.” Circuit City, 532 U.S. at 120-21. Those statutes—including the Railway Labor Act, the Federal Employers’ Liability Act, and the Jones Act—are limited to employees and do not reach independent contractors.

It would therefore have made little sense for Congress to include independent contractors within § 1’s exemption, leaving those workers unprotected by any federal laws related to dispute resolution. As we have recognized, “there are real benefits to the enforcement of arbitration provisions”: among those benefits, “[a]rbitration agreements allow parties to avoid the costs of litigation, a benefit that may be of particular importance in employment litigation, which often involves smaller sums of money.” Circuit City, 532 U.S. at 123. Given that “arbitration’s advantages often would seem helpful to individuals,” Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 280 (1995), it is highly unlikely that Congress intended to withhold the FAA’s benefits from independent contractors.

Finally, we hold that courts, in determining whether the § 1 exemption applies to a particular contract, must focus solely on the terms of that contract. The district court endorsed a contrary approach, ordering “factual discovery” into the relationship between petitioner and respondent. But § 1 by its plain terms categorically excludes certain types of “contracts”; the exemption is not tied to the nature of the parties’ working relationship. Moreover, a detailed factual inquiry into the parties’ relationship would contravene Congress’s intent “to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1983). The categorical approach we adopt today also avoids running afoul of our prior admonition that § 1 should not be interpreted in a manner that introduces “considerable complexity and uncertainty,” thereby “undermining the FAA’s proarbitration purposes and breeding litigation from a statute that seeks to avoid it.” Circuit City, 532 U.S. at 123.  

 The judgment is reversed.

Dissenting View by Nantiya Ruan

Because well-established canons of statutory construction support the First Circuit’s holding that “contracts of employment” include all transportation workers, and not merely those deemed “employees,” I respectfully dissent.

The FAA’s § 1 exemption states: “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. Petitioner argues that Congress could not have meant for any workers beyond “employees” to benefit from this exemption.

Our task is to determine what “other class of workers” means in the context of this FAA exemption.  First, we are mindful that the words in statutes are read in light of their ordinary, plain meaning. Also, those words are understood from the perspective of what was meant when they were drafted. “While every statute’s meaning is fixed at the time of enactment, new applications may arise in light of changes in the world.” Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067, 2070 (2018) (emphasis in the original).

Together, these two statutory construction canons instruct that the phrase “contracts of employment” must be given its everyday, ordinary meaning at the time the FAA was adopted in 1925, unless there is evidence of a technical meaning. That is precisely what the First Circuit did in its decision below in interpreting the FAA’s exemption at issue. After determining that in 1925, “contracts of employment” did not have a technical legal definition (either statutorily or in the common law), and analyzing what “contracts” and “employment” meant by looking to contemporaneous authorities, the court held that “contracts of employment” meant “agreements to perform work.” Such contracts were not limited to workers who could prove or had already proven (under an entirely different legal framework from the FAA) that they were “employees.” Oliveira v. New Prime, Inc., 857 F.3d 7, 17-22 (1st Cir. 2017).

In arguing against this holding, Petitioner relies upon one modern dictionary definition of “employment contract” and what “employee” meant in the context of establishing legal status. Neither argument is persuasive or probative on what “contracts of employment” means in the FAA.

Moreover, Petitioner incorrectly applies the ejusdem generis canon to the statutory language at issue.  To give merit to this argument would undermine the canon’s usefulness and purpose in supporting a system of faithful interpretation of legal texts. “Contracts of employment” is not a residual phrase to be interpreted pursuant to the ejusdem generis canon in support of Petitioner’s argument. The ejusdem generis canon applies in syntactic constructions of particularized lists followed by a broad generic phrase.  But here, “contracts of employment” comes before the list of “seamen, railroad employees, and any other class of workers.” Petitioner urges us to stretch this canon to divine meaning beyond the particularized list and generalized ending phrase and look backward to give meaning to a phrase before the particularized list. To do so violates the explicit terms of the canon.

Lastly, statutory construction also requires employing a “fair reading” methodology to comprehend the “purpose of the text,” which is a “vital part of its context.” Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 33 (2012).  “Interpretation of a word or phrase depends upon reading the whole statutory text, considering the purpose and context of the statute, and consulting any precedents or authorities that inform the analysis.” Dolan v. U.S. Postal Serv., 546 U.S. 481, 486 (2006).

The phrase “contracts of employment” is part of the explicit carve-out to the FAA’s federal policy favoring arbitration agreements. We have interpreted § 1 to “exempt[ ] from the FAA. . . contracts of employment of transportation workers.” Circuit City, 532 U.S. at 119. In so holding, we acknowledged Congress’s “demonstrated concern with transportation workers and their necessary role in the free flow of goods” at the time of enactment.  532 U.S. at 121. As the First Circuit noted, “Given that concern, the distinction that Prime advocates based on the precise employment status of the transportation worker would have been a strange one for Congress to draw: Both individuals who are independent contractors performing transportation work and employees performing that same work play the same necessary role in the free flow of goods.”  Oliveira, 857 F.3d at 22.

I would affirm the First Circuit’s well-reasoned opinion.