Arbitration

May a Trucker and its Drivers Contract Around Section 1 of the Federal Arbitration Act?

John C. Lane

The Supreme Court in New Prime v. Oliveria ruled a truck driver’s employment dispute – even that of an independent contractor – may not be ordered to arbitration under the Federal Arbitration Act. FAA § 1 exempts such contracts from the provisions of the Act. But can the parties agree in their arbitration provision to contract around Section 1? The Ninth Circuit says they may not. The story of its August 19th decision in Romero v. Watkins & Shepard Trucking and the Court’s reasoning are worth a look.

Alejandro Romero worked as a truck driver for Watkins from 1997 to 2019, making intrastate deliveries within California of goods that “had once crossed state lines,” facts essential to the Court’s conclusion that he was engaged in interstate commerce for purposes of FAA § 1. His employment contract contained an arbitration agreement calling for arbitration under the FAA and expressly contracting out of the application of Section 1’s exemption. That contract provision is at the center of the Court’s opinion.

In August 2019 Watkins announced it would cease operations and informed Romero and fellow workers that they would be laid off. Romero was terminated effective August 23, 2019. He filed a putative class action against Watkins in state court alleging violations of the California and federal WARN acts, for failing to give sufficient notice of the cessation of business. Watkins removed the case to federal court and moved to compel arbitration. Of interest here, Watkins argued that the exemption was inapplicable because Romero’s work was entirely intrastate.

The district court ruled that because Romero made intrastate deliveries of goods that had previously crossed state lines, he was engaged in interstate commerce, within the meaning of FAA § 1 exemption. The Ninth Circuit affirmed, citing its 2020 decision in Rittman v. Amazon and ruling that parties to an arbitration agreement may not “contract around the FAA’s transportation worker exemption.”

In the end, however, arbitration was ordered in a companion decision, because the arbitration agreement also invoked the law of Nevada in the event the federal act was held inapplicable. Nevada has no transportation-worker exemption similar to FAA § 1. The Ninth Circuit affirmed the district court’s order to compel arbitration under Nevada law.

The New Jersey Arbitration Act Applies “Automatically”

John C. Lane

A void was left when the Supreme Court of the United States held last year in New Prime v. Oliveira that the Federal Arbitration Act does not apply to a dispute involving a transportation worker’s contract, even if the worker is an independent contractor. The holding rested on an exemption found in Section 1 of the FAA for “contracts of employment” for transportation workers. But that is not the end of the story. The Court left open the use of state arbitration acts for parties and disputes exempted from the federal law. New Jersey stepped up to fill the void in a decision by the state’s Supreme Court in two companion cases, Arafa v. Health Express Corporation and Colon v. Strategic Delivery Solutions, LLC, decided July 14, 2020.

Both plaintiffs are delivery truck drivers whose industries arguably involve interstate commerce. Each signed a contract containing an arbitration clause to be governed “by the FAA.” They sued under wage and hour laws, among others, alleging they were not paid in accordance with those laws. Since the FAA does not apply under New Prime, the plaintiffs argued that there was no meeting of the minds to arbitrate, because the contracts failed to invoke the New Jersey Arbitration Act expressly, as an alternative. The New Jersey Supreme Court disagreed: “[T]he NJAA will apply unless preempted even without being explicitly referenced in an arbitration agreement; no express mention of the NJAA is required to establish a meeting of the minds that it will apply inasmuch as its application is automatic.”

Like the FAA, the New Jersey Arbitration Act provides that a written agreement to arbitrate a dispute shall be valid, irrevocable and enforceable. The two acts operate in the background. The FAA has wide preemptive application to contracts involving international or interstate commerce. But where the FAA does not apply, the New Jersey act steps up “automatically” to fill the void and compel arbitration.

We look forward to more states following New Jersey to apply their own arbitration acts to contracts, such as contracts of employment of transportation workers, to validate and enforce arbitration agreements.

Federal Court Approves Transportation ADR Council’s Fairness and Procedures

The Lane Law Letter

The Transportation Lawyers Association has established and maintains the Transportation ADR Council, which provides arbitration and mediation services for parties involved in transportation-related disputes. The arbitrators and mediators on the Council are all members of the TLA, must have ten years or more legal experience in the transportation field, and must have extensive training in alternate dispute resolution procedures, including arbitration and mediation.

The U.S. District Court in Nashville, Tennessee, recently ruled that the Transportation ADR Council, or TAC, provides fairness consistent with due process, has procedural rules that guard against bias, and requires each arbitrator to “faithfully hear and examine the matter in controversy and make a just award.” In Byars v. Dart Transit Co., plaintiff brought an employment claim against Dart Transit. On Dart’s motion to compel arbitration before the TAC as prescribed in the parties’ agreement, Judge Waverly Crenshaw, Jr., analyzed the structure and procedural safeguards provided by the TAC’s arbitration rules, and ruled in favor of arbitration.

Plaintiff raised concern because all of the TAC arbitrators are transportation lawyers representing businesses in the transportation industry. That is of course a very wide realm. The Arbitration Rules prohibit any person who has a financial or personal interest in the outcome from serving as an arbitrator, and also give the parties the opportunity to question the arbitrators’ impartiality. Quoting the Sixth Circuit, Judge Ryan held that even if all TAC arbitrators had backgrounds in transportation employer defense work, “a party cannot avoid arbitration simply by alleging that the arbitration panel will be biased.”

The court ruled the parties’ agreement to arbitrate in Minnesota is enforceable under the Minnesota Uniform Arbitration Act, even though the Federal Arbitration Act may be inapplicable under the Supreme Court’s 2019 decision in New Prime v. Oliveira. That case held that the FAA does not apply to disputes involving transportation workers’ contracts.

John Lane is a member of the TLA and currently serves as co-chair of the Transportation ADR Council, with Daniel Fulkerson, Esq., of Houston. Like most TAC arbitrators, John is also a commercial arbitrator for the American Arbitration Association.

John Lane Named Co-Chair of the Transportation ADR Council

The Lane Law Letter

John has been named co-chair of the Transportation ADR Council, an arm of the Transportation Lawyer’s Association, a nationwide organization of attorneys in corporate, government, and private practice in the field of transportation law. Together with the ADR Council’s other newly-named co-chair, Dan Fulkerson, Esq., of Houston, John will manage the arbitration/mediation apparatus for resolution of legal disputes arising in the transportation industry.

Recognizing the value of alternate dispute resolution and the benefit it would avail to members of the transportation industry, John along with several other TLA members, sought to create a body of rigorously-trained arbitrators and mediators who are experts in transportation law, and a system of arbitration procedures that accommodate the parties. Under the leadership of Steve Uthoff, Esq. and Eric Benton, Esq., they formed the Transportation ADR Council.

In addition to his role with the ADR Council, John is a member of the American Arbitration Association, the New Jersey Association of Professional Mediators, the Garibaldi Inn of Court for Alternative Dispute Resolution, the Dispute Resolution Sections of the New Jersey and New York State Bar Associations, and has recently been accepted as an arbitrator for the Financial Industry Regulatory Agency, FINRA. John also serves as a mediator in the Superior Court of New Jersey.

Learn more about the TLA and the ADR Council at https://translaw.org.