The U.S. Supreme Court, in the spotlight recently over the confirmation of Brett Kavanaugh, is considering a potential landmark case involving the trucking industry, New Prime Inc. v Oliveira.
The case pits business interests against labor groups in the first major case of the term that could have consequences for hundreds of thousands of American workers and potentially millions of consumers.
On Oct. 3, justices heard the case of Dominic Oliveira, a long-haul truck driver who filed a suit against the transportation outfit New Prime three years ago, alleging that the company failed to pay him minimum wage and at times even charged him for working.
The case could shape an industry that generates more than half a trillion dollars in annual revenue.
The case also raises questions about the use of the “independent contractor” designation to reduce pay and benefits for workers who perform essentially identical work as employees. On that front, the court’s decision could have ramifications for virtually every sector of the economy.
The case turns on whether Oliveira was properly categorized as an independent contractor, and, if so, whether he is entitled to a court hearing on his claims or if he must submit to arbitration. Arbitration is generally preferred by employers as a more efficient dispute resolution mechanism, although critics say it can serve as a shield for unfair corporate practices.
At issue in the case is the meaning of the nearly 100-year-old Federal Arbitration Act (FAA), which exempted certain types of transportation workers from mandatory arbitration agreements. Specifically, the law exempts “contracts of employment.” Much of the battle being waged is whether, in 1925, that phrase would have included independent contractors or only employees.
“Simply because someone would be considered or not considered an employee doesn’t necessarily answer the question of whether it’s a contract of employment,” Chief Justice John Roberts said to the attorney for New Prime, Theodore Boutrous Jr.
Justice Neil Gorsuch asked Boutrous about “the fact that” there was “a lot of historical evidence at the time of the statute in question that ‘contract of employment’ may have swept more broadly?”
If independent contractors are exempt from the FAA, the knock-on effect for the trucking industry and the economy overall could be significant. Given other headwinds facing the transportation industry, like capacity shortages and trade war fears, the worry is that consumers could see an increase in prices of “10, 15, 20 percent,” according to J. Bruce Chan, a vice president and senior analyst at Stifel Capital Markets, who covers logistics firms.
The industry has seen a shortage in drivers get worse year after year, as low wages have failed to attract new entrants to a notoriously difficult job that can involve being on the road for weeks or months at a time.
Some trucking companies have started offering higher wages and bonuses. In an industry with slim margins, many firms have turned to independent contractors, who can cost firms as much as 20 percent less in wages, benefits and other costs than employees, according to Chan.
Some of those independent contractors represent small fleet owners looking to build their own trucking business by contracting out to multiple firms, though that model has been on the decline since the 1970s.
In this case, Oliveira has argued that he was misclassified, because his work was “substantially identical to the job responsibilities of employee drivers.” New Prime dictated Oliveira’s schedule, vacations, home time and monitored his vehicle with an electronic tracking device.
Some justices seemed skeptical that an employer could avoid a court hearing on a dispute by classifying a worker as an “independent contractor,” even if the work they did was similar to the work done by traditional employees.
Justice Sonia Sotomayor, who was appointed by President Barack Obama, asked if there was “any other area of law where we take the party’s label, ’employee’ versus ‘independent contractor,’ and give it binding effect?”
“Your Honor, I can’t think of one,” said Boutrous, the attorney for New Prime.
The American Trucking Associations said in its filing that allowing a court to decide the applicability of arbitration under the FAA “would effectively nullify the advantages of arbitration in misclassification disputes–i.e. disputes that turn on whether a given owner-operator is properly classified as an employee or an independent contractor.”
The ATA added that including owner-operators in the FAA’s exemption “would mean that owner-operators and carriers who agree to arbitrate disputes could never expect those agreement to be enforced under the FAA.”
But the Owner-Operator Independent Drivers Association (OOIDA) argues that lease agreements with motor carriers are in effect contracts of employment that should be covered under the FAA’s exemption.