SCOTUS: Interstate trucking independent contractors are exempt from the Federal Arbitration Act

Some pundits were surprised that the Court would issue a "pro-worker," "anti-arbitration" decision, failing to understand that the Justices all do their best to be faithful to the words Congress puts into its statutes.

Dominic Oliveira is an interstate truck driver whose contract with New Prime designates him as an independent contractor. The contract contains a mandatory arbitration provision and contains a "delegation clause," giving the arbitrator authority to decide threshold questions of arbitrability. Oliveira filed a class action claiming that New Prime failed to pay statutory minimum wage. The trial court denied New Prime's motion to compel arbitration; the 1st Circuit affirmed. The US Supreme Court affirmed unanimously. New Prime v. Oliveira (US Supreme Ct 01/15/2019)

The Federal Arbitration Act (FAA) directs courts to compel arbitration, but §1 says that "nothing" in the Act "shall apply" to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."

The Supreme Court held that the trial court – not the arbitrator – must first decide whether FAA §1 excludes Oliveira. This is because the contract's delegation clause (which is merely a specialized type of arbitration agreement) can be enforced only if the FAA applies in the first place.

The Supreme Court also held that FAA §1 excludes Oliveira. The FAA's term "contract of employment" refers to any agreement to perform work. At the time of the FAA's adoption in 1925, the phrase "contract of employment" was not a term of art, and dictionaries tended to treat "employment" more or less as a synonym for "work." Contemporaneous legal authorities provide no evidence that a "contract of employment" necessarily signaled a formal employer-employee relationship.

Massage therapy students were not employees under the FLSA.

Nesbitt, a former massage therapy student at a for-profit vocational school, sued claiming that she and fellow students were employees under the Fair Labor Standards Act (FLSA), and thus entitled to be paid minimum wage. The trial court granted summary judgment for the school; the 10th Circuit affirmed. Nesbitt v. FCNH (10th Cir 11/09/2018) [PDF]

Students typically performed five massages per day on members of the public, who paid discounted rates for the massages. Nesbitt claimed that the school profited by using the students as free labor. The court applied the six-part test adopted in Reich v. Parker Fire Protection District, 992 F.2d 1023 (10th Cir. 1993).

Nesbitt focused on two factors:

(1) She claimed that the observation and supervision of students was inadequate, but the court pointed out that the "close supervision" factor is meant to distinguish between regular employees and trainees. At no time did the students function as regular employees; they were students learning a trade on vocational school premises.

(2) She also claimed that the school – rather than the students – was the primary beneficiary of the arrangement. The court's answer was that Nesbitt needed to graduate from an accredited massage therapy school in order to acquire a state license, and the school's 100-hour minimum clinical requirement clearly provided her a material benefit. The court also said, "This is true regardless of the profit, if any, that [the school] may have made from the students' unpaid work."

Never mind about valet uniforms. Focus on the tickets they use. [You can't make this up.]

The 11th Circuit has a new explanation for why a company employing valets might be a covered enterprise under the FLSA. Asalde v. First Class Parking (11th Cir 08/03/2018) [PDF] In its June 29 opinion [PDF] the court said that a jury could find that the uniforms worn by valets are "materials" and that the valets "handle" the uniforms. In its August 3 opinion – without explaining why – the court ignores uniforms and examines valet tickets.

Asalde, a valet, brought claims in a putative collective action under the minimum-wage and overtime provisions of the Fair Labor Standards Act (FLSA). The trial court granted summary judgment for the employer; the 11th Circuit reversed. The case turned on whether the employer was a covered enterprise under the FLSA, and that question turned on whether valets who park customers' cars are "handling … materials" that have moved in commerce. 29 U.S.C. § 203(s)(1)(A)(i). The court concluded that a jury could find that the valet tickets used by the plaintiff are "materials," so the employer could possibly be a covered enterprise.

The court had previously held that cars parked by valets are not "materials" because they are an item on which a service is performed rather than the means of performing the service. Tickets are a different matter. "A jury could find that the valet tickets are 'articles necessary for doing . . . something,' i.e., providing the commercial service of parking cars. Second, a jury could find that the valet tickets have a "significant connection' with [defendant]'s commercial activity."

The court also found that there was evidence to support a finding that the tickets "moved in commerce" into the state of Florida. A ticket was stamped "PRINTED IN USA," as well as "SOUTHLAND PRINTING, SHREVEPORT, LA." [In its June 29 opinion the court was impressed that uniforms had labels such as "Made in ________."]

By the way, the judge who dissented in the original decision has retired, so the most recent decision was from the remaining two – a "quorum."

Another railroad payroll tax case hits the US Supreme Court

Here's a case that's unimportant unless you are a railroad company or railroad employee. And then it is very important.

A railroad worker got a jury verdict against the railroad on his Federal Employers Liability Act claim that the railroad was liable for negligently causing a knee injury. The verdict included an amount of $30,000 for lost wages. The railroad moved the court to offset the lost wages award by the amount of the employee’s share of taxes ($3,765 ) owed under the Railroad Retirement Tax Act (RRTA). The trail court refused. The 8th Circuit affirmed. Loos v. BNSF Railway (8th Cir 08/03/2017) [PDF].  

The US Supreme Court granted certiorari on May 14 to review the 8th Circuit's judgment. BNSF Railway v. Loos (US Supreme Ct cert granted 05/14/2018) [Briefs]

The Railroad Retirement Tax Act together with the Railroad Retirement Act establishes a retirement and disability system that is separate from Social Security. The lower courts held that the damages that plaintiff received for time lost from work do not constitute taxable "compensation" under the RRTA. Altogether, various courts – both state and federal – seem to be hopelessly divided as to whether taxable “compensation” under the RRTA includes pay for time lost. This obviously makes life complicated for an interstate railway company and its employees, and makes them subject to differing tax treatment depending on where lawsuits are filed. In other words, there's a forum-shopping nightmare.

There is an IRS regulation that interprets taxable “compensation” under the RRTA as including pay for time lost. Courts differ as to whether to follow that regulation.

Expect an oral argument to be scheduled for the Fall of 2018.