James F. Mahoney, Attorney

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May 2018

The Supreme Court’s Epic Systems Decision and Its Effect on Motor Carriers

On May 21 the U.S. Supreme Court decided that mandatory arbitration clauses and class action waiver clauses can be used by employers, which would effectively eliminate class action suits for various claims.

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While the Supreme Court did not specifically discuss independent contractors, the decision does acknowledge that the Court has rejected every other challenge to the Federal Arbitration Act, so independent contractor operating agreements may eventually stand up well against class action suits – that is, if the Supreme Court next year favorably decides New Prime Inc. v. Oliveira.

In that case, New Prime had moved to compel arbitration under the Federal Arbitration Act, arguing that the interstate transportation workers’ exemption within the FAA didn’t apply to contractors because these are not contracts of employment, and the issue of arbitrability of owner-operator contracts should be decided by an arbitrator as a threshold issue.

The issues as framed in the Supreme Court briefs of the parties are (1) whether a dispute over applicability of the Federal Arbitration Act's Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause; and (2) whether the FAA's Section 1 exemption, which applies on its face only to “contracts of employment,” is inapplicable to independent contractor agreements.

In practical application, motor carriers should update their ICOAs to be prepared for a possible favorable decision by the Supreme Court within the next 12 months. The benefit would be significant if a proposed class brings an action against the motor carrier; in such a case, a motion to the court to enforce the clauses under the theory pronounced in Epic Systems Corp. v. Lewis and New Prime Inc. v. Oliveira should result in dismissal of the class suit. Ultimately, any contractors wishing to claim against the motor carrier would have to do so individually in an arbitration proceeding.

As we know, the main drivers behind class action suits against motor carriers are the lawyers who gain handsomely by aggregating into a “class” multiple small, individual claims and seek attorney fees for representing all the class members. In arbitration, the individual claims do not amount to large paydays for lawyers.

There are some disadvantages to forcing arbitration, but they are greatly outweighed by eliminating many, if not most, of the tag-along class members who need do nothing in class actions and may end up with a windfall verdict or settlement. Thus, there’s a lot less money at stake for motor carriers in defending individual arbitration claims. Arbitration costs exceed court costs and often take as long as court cases, with the same amount of pre-arbitration discovery, but avoiding class action lawsuits is worth it.

Motor carriers at risk of its owner-operators filing class action lawsuits are encouraged to update their ICOAs now to take advantage of the effect of these two Supreme Court cases.