ENFORCEMENT OF INDIVIDUAL ARBITRATION AGREEMENTS – SUPREME COURT TAKES TWO STEPS FORWARD AND ONE STEP BACK

Last year, the Supreme Court of the United States issued a significant decision upholding the use of individual arbitration agreements that include class action waivers. The Epic Systems’ Decision provided clarity to employers considering the use of arbitration agreements and class action waivers in the employment context. However, for employers with workers in the transportation industry, the Supreme Court has now taken a significant step back from the recent trend of opinions favoring arbitration agreements in the employment context.

In New Prime, Inc. v. Olivera, the Supreme Court held that the Federal Arbitration Act does not apply to workers (including independent contractors) engaged in transportation in interstate commerce. The Supreme Court has consistently noted that the Federal Arbitration Act (FAA) establishes “a liberal federal policy favoring arbitration agreements.” However, the FAA also contains a specific exclusion for transportation workers engaged in interstate commerce. The Supreme Court held in New Prime that this exclusion applies to all such transportation workers, regardless of whether they are classified as employees or independent contractors.

After New Prime, employers who enter into arbitration agreements with employees or independent contractors who transport goods in interstate commerce will not be able to rely upon the FAA when seeking to enforce those agreements. The decision does not necessarily mean that all arbitration agreements with transportation workers are invalid, since Pennsylvania and most other states have laws relating to the enforcement of private arbitration agreements. However, Epic Systems and other U.S. Supreme Court decisions which had strongly favored enforcement of arbitration agreements will not apply to arbitration agreements with transportation workers engaged in interstate commerce. As such, employers should carefully evaluate any arbitration agreements with employees or independent contractors engaged in transportation in interstate commerce and the result may differ from state to state.

While the New Prime decision represents a step backwards with respect to enforcement of arbitration agreements with workers engaged in transportation in interstate commerce, most obstacles to enforcement have been cleared by the Supreme Court with respect to other workers. As such, most employers have a green light to consider mandatory employment arbitration agreements and class action waivers, while employers in the transportation industry should now proceed with caution.

If you are considering using individual arbitration agreements with your employees and independent contractors, please contact any member of our Labor and Employment Practice Group.