New Prime Vs. Oliveira: The Devil Is In The Details!

Tips to avoid costly and protracted litigations

The Federal Arbitration Act requires courts to enforce private arbitration agreements. However, there are some exceptions. Most relevant to New Prime Inc. v. Oliveira, court may not compel arbitration in cases of “contracts of employment” and written provisions “in any maritime transaction or a contract evidencing a transaction involving commerce.” A court may only “stay litigation and compel arbitration “accord[ing to] the terms” of the parties' agreement.”
 

Although New Prime classified Oliveira as an “independent contractor,” he contends: (a) that he was in fact an employee and was misclassified; and (b) that the language of the statue regarding “contracts of employment,” extend to independent contractors. 
 
New Prime contends that the statute was intended only for the employer-employee relationship and it does not extend to independent contractors. 
 
The Court held that the Act has to be construed taking into account the era in which it was drafted (circa 1925). The Court opined that in 1925 the phrase “contracts of employment” included all forms of workers including employee-employer and independent contractors. Consequently, the exception to the court’s power to compel arbitration applied and the court could not require the parties to arbitrate the underlying dispute. 

Takeaways

This is a landmark case with respect to employment (and independent contractor) arbitration agreements in interstate commerce. Employers in applicable industries should reconsider their agreements with employees and independent contractors and may want to consider internal dispute resolution programs to address employment issues before they become litigation. For example, many organizations create an internal grievance program providing an ombudsman who can work with employees and management to resolve issues in the early stages of the dispute. Oftentimes, early resolution can help employers avoid costly and protracted litigation.