Supreme Court Holds Independent Contractors Employment Contracts are excluded from the Federal Arbitration Act’s Coverage

On January 15, 2019, the Supreme Court ruled that a court must first decide whether an agreement is excluded from the Federal Arbitration Act’s (the Act) coverage before it can compel arbitration, even if the agreement delegates questions of arbitrability to an arbitrator.  Further, the Court held that employment contracts with independent contractors are “contracts of employment” under the Act.

The case involved an interstate trucking company and one of its drivers.  The driver was contracted under an operating agreement that contained a mandatory arbitration provision and identified the driver as an independent contractor.  The driver filed a class action in court alleging that the trucking company failed to pay its drivers lawful wages.  The company asked the court to use its statutory authority under Sections 3 and 4 of the Act to compel arbitration according to the terms of the agreement.  However, the driver argued that Section 1 of the Act excludes from its coverage “contracts of employment of … workers engaged in foreign or interstate commerce,” and therefore, the Act did not give the district court authority to compel arbitration in this case.  The company argued that, given the breadth of the parties’ arbitration agreement, any question about Section 1’s applicability was for the arbitrator to resolve.  Alternatively, the company argued the term “contracts of employment” refers only to contracts that establish an employer-employee relationship and not an employer-independent contractor relationship, and therefore, the Section 1 exclusion did not apply in this case and arbitration could be compelled.

First, the Court upheld the First Circuit’s conclusion that a court should decide for itself, and not leave it for an arbitrator, whether Section 1’s “contracts of employment” exclusion applies before compelling arbitration under Sections 3 and 4 of the Act.  The court reasoned that though Sections 3 and 4 of the Act provide a court with the authority to stay litigation and compel arbitration if two parties have agreed to arbitrate future disputes and one party tries to evade the agreement, this power is limited by the antecedent statutory provisions of the Act.  Specifically at issue here, Section 1 states:  “nothing in the Act will apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  Given the terms and sequencing of the Act, the Court decided that a court must first determine whether the contract falls within the statutory scope before it can invoke its statutory authority to compel arbitration under Sections 3 and 4.

Second, the Court upheld the First Circuit’s decision that the term “contracts of employment” includes contracts with independent contractors.  After analyzing the meaning of “contracts of employment” as used in 1925, the year when the Act was enacted, the court concluded that the term did not necessarily only imply the existence of an employer-employee or master-servant relationship.  The Court further found that the term “contracts of employment” in the Act refers to an agreement to perform work and therefore includes agreements with independent contractors.