Supreme Court deals another blow to employees on arbitration

Earlier this year Denver Labor Law reported on the Supreme Court’s position on mandatory arbitration of independent contractors in New Prime. At the end of April the nation’s highest court issued another employment arbitration decision on the subject of class arbitrations. In Lamps Plus the Supreme Court resolved that employees (and presumably other classes) are not entitled to arbitrate as a class unless the arbitration agreement provides for that form of arbitration in its text. Lamps Plus is another case in recent Supreme Court jurisprudence strengthening the power of businesses to force individuals into private arbitration proceedings out of the public view of the courts.

What is class arbitration in employment law?

Arbitration is a private form of conflict resolution created by contract but enforced as a special type of contract by federal and state laws that require parties to forego their right to bring a lawsuit in court and instead bring claims covered by the arbitration agreement into an arbitration proceeding. Under the governing law, such as the Federal Arbitration Act, parties can generally create any rules they wish for arbitration but as arbitration become more prominent as a compelled condition of consumer and employment relationships courts set minimal standards that require some degree of fairness and due process.

Neither federal nor state arbitration law requires parties to individually arbitrate every claim. Parties could form agreements that allow for class arbitrations in which claims of many parties are brought in a single arbitration action, much like a class action lawsuit in Colorado or federal courts. For example, if several employees alleged workplace harassment by a single employer then they might bring a class action against the employer under federal and Colorado employment law. An arbitration agreement in the workplace may require the parties to arbitrate and the employees could arbitrate as a class if permitted by the agreement.

When does an arbitration agreement allow for class arbitration under Lamps Plus?

Prior to Lamps Plus the Supreme Court had mostly closed the door on class arbitrations unless the arbitration agreement explicitly permitted it. In 2010 the Supreme Court rejected a Ninth Circuit opinion in Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010) authorizing class arbitrations if it was “sound policy.” In Stolt-Nielson the arbitration agreement was silent on the subject of employees arbitrating as a class. Lawyers for both sides stipulated to that fact. The Ninth Circuit decided the agreement could include class arbitrations essentially if it made sense under the circumstances. The Supreme Court disagreed and held the Federal Arbitration Agreement did not allow for such a reformation of the contract.

In Lamps Plus the Ninth Circuit took a different approach. In this case the arbitration agreement did not textually include an authorization for class arbitration. The court applied state contract law to the agreement and held the employees could arbitrate as a class because basic contract law construes ambiguity in the contract against the drafter–the employer. The Ninth Circuit held, as the Supreme Court dissenters agreed, the Federal Arbitration Act did not create a federal contract law that overruled state contract law on the interpretation of a contract.

The Supreme Court majority agreed that the agreement was ambiguous but class arbitration holds a special place in arbitration law that allows it to preempt state contract law interpretations. The conservative majority relied on primarily its own opinions on class waivers in arbitration agreements to decide that an arbitration agreement only allows for class arbitrations if the text specifically allows it.

Why this matters for labor and employment law

For employees Lamps Plus is another step forward in the assault on access to the judicial forum and the ability to cast the bad acts of employers into the sunlight. It was a foregone conclusion that the Court would reject the Ninth Circuit’s position in this case given the conservative majority’s open hostility towards class actions and arbitration. Nevertheless, these decisions make it more difficult for employees to use their collective power to effect change in the workplace–which is another right deeply under attack by right-wing political forces in this country.

Employees should not give up fighting for their rights and pursue remedies of those violations under federal and Colorado law. Labor and employment law still gives employees rights and remedies and fighting for them raises the cost for every other employer to participate in unlawful and appalling behavior. If you believe your employer violated your workplace rights then you should contact Denver employment attorneys right away.

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What qualifies for family medical leave in Colorado?

Colorado employees often face difficult decisions about balancing work hours against taking leave from work for illness, disability and the care of family members. Legal protections exist for employees to take certain types of family leave and medical leave but it can be tough to figure out when those legal protections exist. Colorado employees may struggle to figure out what qualifies for family medical leave in Colorado? Under federal and state employment law family and medical leave include specific categories of leave that include serious medical conditions and to provide care for specific family members. Adding to the complications of federal and state FMLA laws are other related laws that provide different legal protections for family leave and medical leave. If you are unsure whether your need for leave qualifies under employment law then you should talk to Colorado employment attorneys about your situation.

FMLA and Colorado FMLA

For most employees in Colorado family medical leave is available through the federal FMLA and state Colorado FMLA. FMLA is the Family and Medical Leave Act. The federal FMLA protects the right for employees to take up to twelve weeks of unpaid leave from work for specific family and medical reasons. The Colorado FMLA expands upon the leave protections of the federal employment law to extend additional reasons to workers. Assessing leave rights under both the federal and Colorado employment law requires a multistep analysis. Failure to qualify for FMLA or Colorado FMLA coverage may result in the employee not taking leave or taking leave without a legal right to return to work.

Reasons for FMLA and Colorado FMLA protected leave

Employees eligible for FMLA or Colorado FMLA protected leave may take leave for specific reasons enumerated in each statute. The federal FMLA is more limited in reasons but provides the basis for FMLA family and medical leave.

The federal FMLA permits leave for:

  • The birth or care of a newborn child of the employee;
  • Placement of a child for adoption or foster care with the employee;
  • Medical leave because the employee is unable to work due to a serious health condition; or
  • To provide care for an immediate family member with a serious health condition.

Federal law also extends FMLA to provide care for a military servicemember or veteran who has a service-related injury or illness or address a situation caused by the active service of an immediate family member.

The Colorado FMLA law—the Colorado Family Care Act—applies to all of the same reasons as the federal employment law but permits medical leave to provide care to a larger realm of family members. Let’s discuss the two most difficult issues in FMLA reasons for family medical leave: serious health condition and the family members covered by each statute.

Serious health conditions under FMLA and Colorado Family Care Act (CFCA)

A serious health condition for family medical leave involves “an illness, injury, impairment, or physical or mental condition that involves: A. inpatient care in a hospital, hospice, or residential medical care facility; or B. continuing treatment by a health care provider.”

Health conditions described by FMLA regulations for family medical leave include:

  • Incapacity due to pregnancy or childbirth;
  • A chronic serious health condition;
  • A permanent or long term health condition for which treatment may not be effective;
  • Treatment for an injury;
  • A condition that would result in incapacity of more than three consecutive days in the absence of medical intervention or treatment.

It is important to note that these definitions extend broadly to cover many health conditions but the employee’s entitlement to family medical leave under the statute must be coupled with the defined level of treatment. That includes inpatient care of at least an overnight stay or continuing treatment either with multiple visits for treatment or a regimen prescribed for treatment. These regulations extend specific rules around the meaning and application of these terms. In situations where your employer rejects an FMLA request for leave or considers rejecting a request you should talk to a Colorado employment lawyer about whether your leave request applies to federal and state law.

Family members under the FMLA and Colorado Family Care Act

Another common source of disputes under FMLA is who the statute covers when an employee needs to provide care for a family member with a serious health condition. Under the federal statute an employee may take family medical leave for the care of an immediate family member with a serious health condition. FMLA identifies specific individuals as an “immediate family member” for purposes of the statute. Under the federal law an immediate family member includes:

  • Spouse;
  • Child;
  • Parent;
  • Person who stood in loco parentis to the employee when the employee was a child (took on the responsibilities of being a parent to the employee when he or she was a child).

FMLA does not protect family medical leave for an employee to provide care for a sibling, niece or nephew, grandparent, aunt or uncle, or a boyfriend or girlfriend.

In 2013 the Colorado legislature decided employees often provide care for other people who have a close familial relationship and employees should have protected leave rights to care for those people. The legislature passed the Colorado Family Care Act which extends the range of individuals to whom the employee may receive protected leave to care for a serious health condition.

The Colorado Family Care Act extends coverage for:

  • Blood relationships;
  • Family relationships created by adoption;
  • Relationships created by legal custody;
  • Relationships created by marriage (such as step-children and in-laws);
  • Relationships created by civil unions;
  • A person in a committed, live-in relationship with the employee.

The Colorado Family Care Act extends care to many modern families left behind by the federal employment law. Many employees today provide care for in-laws, siblings, extended family members and live-in partners left out of the federal statute.

FMLA and Colorado FMLA eligibility

The first step in assessing whether FMLA or the Colorado FMLA protects family medical leave is to determine if the employee is eligible for protected leave under either law. This step itself has two components. First, we must determine if the employer is covered by the statutes so that any of its employees may receive FMLA protections. Second, we must determine whether the employee satisfies FMLA requirements to request protected leave.

Employer coverage under FMLA

FMLA applies to an employer if the employer employs fifty or more employees within a seventy-five mile radius of the employee’s normal work site. Traditionally most employers conduct business out of centralized locations like offices, warehouses, or retail stores. In the modern workplace many employees work remotely from home, may work traveling jobs, or split work time between multiple work sites. For these employers the analysis is more tricky and determining where an employee works for FMLA coverage purposes is necessary to determine who counts as an employee within the seventy-five mile radius.

An employee might work for an employer who has some staff covered by FMLA protections and some who are not. The employer coverage analysis is specific to each employee and that employee’s seventy-five mile radius. It is not enough to look just as how many employees the employer staffs overall.

FMLA employee eligibility

If an employee works for a covered employer then the next step is to determine whether the employee is eligible for FMLA protected leave. An employee gains FMLA protection by completing two requirements. First, the employee must have been employed by the employer for at least one year. Second, the employee must have completed at least 1,250 work hours over the course of employment with that employer. For most full time or near-full time employees, the employee will complete the work hours requirement within the first twelve months of work.

This analysis is straightforward for employees who worked a consistent year for the employer; however, it is more complicated when the employee has breaks in service. FMLA regulations describe particular rules that apply when the employee has worked partial years for the employer without a complete, continuous year of service. This extends FMLA rights to employers who hire seasonally and those who furlough employees on a regular basis.

Employer denial of FMLA and Colorado FMLA leave

It is unlawful for your employer to violate your rights to family medical leave under the Family and Medical Leave Act and the Colorado Family Care Act. Your employer may violate your rights by:

  • Unlawfully denying protected family medical leave under the federal or Colorado statutes;
  • Interfering with your ability to request family medical leave;
  • Interfering with your protected leave once approved;
  • Retaliating against you for requesting or taking protected family medical leave.

FMLA and the Colorado Family Care Act are highly technical statutes that carefully regulate most aspects of protected family and medical leave. An employer’s failure to comply with the law or intentional retaliation for an employee exercising his or her rights can carry substantial penalty. An employee may recover lost wages, liquidated damages, attorney’s fees and other relief due to a violation of the statute.

Contact Denver employment attorneys about FMLA and Colorado FMLA violations

If you believe your employer violated FMLA or the Colorado Family Care Act then you should contact Denver employment attorneys right away. An employment attorney can help you seek remedies for the employer’s bad acts. In some situations it may be possible to obtain a court order restoring you to a job or title if an employer retaliates against you for taking family medical leave. The sooner you talk to an employment attorney the sooner you can get help.

If your employer is delaying or denying FMLA leave or leave under the Colorado Family Care Act then you should talk to Denver employment attorneys immediately about your situation. Employment attorneys familiar with protected leave laws can discuss your rights and help you get the leave you are entitled to under law.

Is 32 hours considered full time in Colorado?

Many Colorado employers provide employee benefits, pay differentials, job assignments and other important benefits on the basis of whether an employee works full time or part time. This can lead to a lot of questions about what is full time under Colorado employment law. These questions typically do not exist when employees work a forty hour workweek but usually arise when employees work thirty-two hours or some other slightly lower number. For example, you might wonder is 32 hours considered full time in Colorado. The answer depends upon to what issue the full time status relates. Today’s post will explore some of the common issues in determining full time status under Colorado employment law.

Basic rule for full time status in Colorado

Colorado labor and employment law does not contain an expansive definition of full time or part time status for employees. In general an employee is full time or part time based upon an employer’s own definition. Full time versus part time is often a dividing line for benefits or certain positions but that line is typically not drawn out of a federal or Colorado employment law.

However, several employment law statutes set minimum or maximum limits for how much an employee may or must work to obtain a specific status under the law. Examples include:

  • Employees must work 1000 hours within a calendar year to obtain FMLA eligibility which might informally be considered a full time employee;
  • Minors generally have limited maximum hours of work within a workweek and cannot be required to miss school hours for work;
  • Employees working in certain transportation jobs may be limited by how many travel hours they may complete in a day or week;

We will talk about some common statutory minimum hours for full time status under federal and Colorado employment law in greater detail although it is important to note that the term “full time” is not common statutory or regulatory language in federal and Colorado law.

When a labor law or employment law does not set a minimum or maximum hourly requirement it is generally up to the employer or an agreement between employees and employer to determine when full time status kicks in for particular benefits, job assignments, compensation and so forth. Many Colorado employers consider full time a forty hour workweek schedule but some draw the line at a smaller number. Some employers set the line at thirty-five or thirty-two hours, particularly in industries like restaurants and retail where employees might work flexible schedules or less than a five day workweek.

The best way to assess whether you are a full time employee in Colorado at thirty-two hours is to focus on the specific subject in which the full time status applies. Review your employer’s documentation and legal resources to determine the answer as it applies to that subject. You might be full time for some subjects and not for others. Applying a single rule to every workplace issue might result in misinforming yourself. Operating on misinformed positions could put your job at risk. As always, if legal issues are involved in your question you should consult employment lawyers in Colorado as soon as possible.

Overtime pay in Colorado

Overtime pay is not exactly a full time versus part time issue but it definitely deals with the work hours for an employee. Federal and Colorado overtime laws calculate overtime pay for all hours in the workweek exceeding forty hours of work for all nonexempt employees. For this purpose an employee can be considered a full time employee at forty hours under the statute. An employee working overtime hours is more than full time. An employer could begin paying overtime pay at thirty-two hours if it wishes but that is an extremely uncommon practice.

Employee benefits and full time status

Most employees care about full time status because employers make benefit plans available to full time employees but may not extend them to part time employees. When we think about employee benefits from an employment law perspective we can think of them in two categories. The differences in categories is important to how and when an employer may make benefits available to employees based on work hours.

Regulated benefit plans under federal and Colorado employment law

First are employee benefit plans regulated by law. For private employers this typically falls under ERISA, the federal law regulating many types of employee benefit plans including:

  • 401k plans
  • Defined benefit pension plans
  • 403b plans
  • Health care plans (e.g. health insurance)
  • Cafeteria plans (e.g. reimbursement benefits)
  • Certain long and short term disability benefits
  • Some severance benefits

Employees of federal and Colorado government agencies often offer similar benefits operated under a plan regulated by state or federal laws as applicable. Although the complex regulatory apparatus behind ERISA does not apply to these plans they still generally follow similar regulatory mechanisms.

Benefits regulated by ERISA or other laws must operate as a plan with established rules. The applicable laws often set requirements for eligibility to the plan. Often employers may establish rules for eligibility based upon hours or length of service with the employer within the permitted confines of the law. Often employers can set eligibility on completion of a certain number of work hours in a year which effectively makes many part time employees ineligible for benefits.

A specific weekly hour threshold exists in the Affordable Care Act. Under the ACA employers must make available compliant health insurance to all employees who regularly work at least thirty hours in a work week. For the purposes of the ACA an employee is full time if the employee works thirty hours in a regular work week. Employers cannot set a higher limit for full time like thirty-two hours or forty hours.

Other benefits or fringe benefits

Employers may offer other benefits not regulated by ERISA or other laws. For these benefits an employer can generally set whatever constraints on eligibility it wishes. (Employers cannot use an unlawful motivation to extend benefits, such as unlawful forms of employment discrimination or in retaliation for complaining about a minimum wage violation.) These benefits include:

  • Paid time off (e.g. vacation pay, sick pay, personal days)
  • Company car
  • Most bonus programs
  • Training programs
  • Company sport programs
  • Free tickets to events
  • Raffles

Employers can set limits for work hours, length of service, job title and so forth to make these benefits available. If an employer sets a threshold for work hours as a full time employee for these benefits it may do so and even set different standards for each benefit. Often employers try to target a specific number for consistency, such as fort hours or thirty-two hours for full time employment across benefits; but an employer is free to have a more confusing policy.

Unemployment benefits in Colorado and employment status

Colorado unemployment benefits require that employees work for a given length of time and earn a minimum of $2500 during that period. It does not require an employee to work any specific number of hours in a workweek or for an employer to designate employees as full time employees. So long as an employee meets the length of service and wage minimums then the employee qualifies for a claim. (Assuming the employee otherwise qualifies.)

Some employers as a matter of course pay severance benefits to employees designated as full time employees. Here the issue may be complicated because a severance plan may fall under ERISA regulation but does not necessarily fall under ERISA regulation. The best way to begin answering that question is to review the severance information available from your employer which may include ERISA language.

Do Colorado employees get paid for snow days?

With winter weather in full swing employees in Denver and other parts of Colorado wake up to a lot of snow and ice days. Employers make decisions to open for limited hours or to close entirely for those days. For some workers that can mean an extra day off; but for other employees that can mean losing work hours and badly needed pay. That can leave many employees wondering if work is closed on a snow day, do I get paid? The answer is sometimes depending upon the worker’s status as an employee or independent contractor and exempt or non-exempt. Let’s explore this answer for Colorado workers.

Exempt employees vs. Nonexempt employees

Rules for payment of wages to employees differ depending upon whether an employee is appropriately classified as an exempt or nonexempt employee under the Fair Labor Standards Act and Colorado employment law. Under federal and Colorado wage law an exempt employee is exempt from overtime pay and minimum wage rules. Exempt employees are generally salaried employees who meet one or more statutory exemptions.

An employee is not exempt merely because he or she receives pay on a salary basis or because the employer says the employee is exempt. Most nonexempt employees receive hourly pay on the basis of hours worked in the workweek; but there are employees properly classified as nonexempt who receive a salary. Many employers misclassify nonexempt employees as exempt employees which often results in unpaid overtime pay and minimum wage violations. If you believe you may be misclassified then you should talk to a Colorado unpaid wages lawyer right away.

Snow day pay for nonexempt employees in Colorado

Nonexempt employees are not entitled to pay for hours the employer closes a work site under federal or Colorado employment law. Nevertheless, you may receive wages for an inclement weather day under an employer’s voluntary policy or under a contracted benefit such as:

  • An employer’s elective policy to pay wages for an inclement weather day;
  • The employer allows employees to elect to receive vacation pay or other PTO instead of taking the snow day unpaid;
  • A collective bargaining agreement between your union and employer includes required paid time for inclement weather days;
  • An individual employment contract includes provisions requiring the employer to pay wages for inclement weather days.

You should review the employer’s handbook or any employment contract for these provisions.

Snow day pay for exempt employees in Colorado

The rules for salaried exempt employees under the Fair Labor Standards Act and Colorado employment law are more complex. Employers must pay salaried exempt employees within specific rules to maintain the exemption from overtime pay and minimum wage. If an employer violates these rules then the exemption is destroyed and the employer must pay the employee at least minimum wage plus overtime pay for applicable hours. One of these rules applies to situations where an employer closes for a partial or full day due to weather.

Under the Fair Labor Standards Act an employer generally must pay a salaried exempt employee for an entire week of pay if the employee worked any part of the workweek. Under this rule the employee must be willing to work but is unable to work due to conditions not caused by the employee. This certainly includes days the employer shuts down work, such as snow days. It also includes days in which weather prevents you from getting to the office but the employer is open. (By contrast, an employer can make deductions for narrow reasons, such as the salaried, exempt employee’s FMLA leave.) Although employers cannot deduct salaried exempt employee’s pay for snow days it may deduct the time the employer closes from the employee’s PTO bank.

Employment discrimination lawyers in Colorado

Independent Contractors in Colorado and snow day pay

Independent contractors are not employees and therefore only receive pay under the conditions of their contracts. Often contractors only receive pay for days they work or generally for performing services; therefore, it is not common for contractors to receive pay for snow days. Independent contractors must review the terms of their contracts to determine whether the contract gives them snow day pay.

However, it is common for employers to misclassify employees as independent contractors to avoid employee rights laws and wage requirements. Misclassified employees may have remedies against their employer including overtime pay and FMLA rights. If you believe your employer misclassified you as an independent contractor then you should talk to a Colorado unpaid wages lawyer right away.

NLRB revises independent contractors test for federal labor law rights

Last week the Republican-majority National Labor Relations Board overturned its 2014 independent contractor test expanding labor law rights to more workers under the National Labor Relations Act. This unsurprising move reflects the Trump administration’s hostility towards administrative regulation and workers’ rights. The revised test will open the door for employers to classify workers as independent contractors to further erode worker rights and compensation.

The NLRB 2014 independent contractor test for labor rights

Under the National Labor Relations Act and its later amending acts, a worker obtains labor rights under the NLRA if the worker is classified as an employee. The problem is that the statutory language, like many labor and employment laws, lacks a clear mechanism to determine who is an employee under the statute. Courts and administrative agencies often rely on one of several common law tests. These tests weigh factors related to important components of the employer-worker relationship.

Historically the NLRB applied the common law agency test first focusing on the employer’s control over the worker and later shifting to focusing on the entrepreneurial opportunity for gains or losses. Ten years ago a challenge to the independent contractor classification of drivers at Fedex led to the D.C. Circuit applying the ten factor common law agency test and focusing on the entrepreneurial opportunity for gains or losses. (Fedex I.) The D.C. Circuit in FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009) reviewed the NLRB’s historical application of the test and applied the test to hold the drivers were independent contractors and not employees.

In a subsequent NLRB proceeding in 2014 the labor board disagreed. The NLRB refined its application of the common law test to a test by adding a factor considering whether the independent contractor works for an independent business rather than the usual wink wink relationship that a worker is an independent contractor because the business says so. The now eleven factor test included:

  1. Extent of control by the employer
  2. Whether or not the individual is engaged in a distinct occupation or business
  3. Whether the work is usually done under the direction of the employer or by a specialist without supervision
  4. Skill required in the occupation
  5. Whether the employer or individual supplies instrumentalities, tools, and place of work
  6. Length of time for which individual is employed
  7. Method of payment
  8. Whether or not work is part of the regular business of the employer
  9. Whether or not the parties believe they are creating an independent contractor relationship
  10. Whether the principal is or is not in the business
  11. (New:) Whether the evidence tends to show that the individual is, in fact, rendering services as an independent business

The NLRB applied this refined test to find another set of drivers are employees. Agast, Fedex appealed the decision. The D.C. Circuit again insisted its pro-business interpretation was correct and the NLRB should have expected the same result. (Fedex II.) Nevertheless the NLRB refused to walk back its refined test.

The NLRB’s 2014 refinement of its independent contractor test makes tremendous sense in light of current trends in employment. Employers increasingly shift jobs from employee to independent contractor to avoid labor and employment laws and reduce labor costs. Jobs shift to supposed independent contractors who do not operate independent businesses, only work for a single employer and have their work substantially controlled by that employer. Few disinterested and rational individuals would look at these relationships as anything less than employer-employee.

New NLRB decision on independent contractor classification

In 2018 a complaint was filed by franchisee drivers at DFW Airport alleging, under the NLRB’s refined test, that they are employees eligible to unionize under federal law. The employer was quick to point out Fedex II and the now Republican-majority NLRB agreed. It overturned the 2014 refinement returning to the ten factor common law agency test. 

“The board majority’s decision in FedEx did far more than merely ‘refine’ the common-law independent contractor test — it ‘fundamentally shifted the independent contractor analysis, for implicit policy-based reasons, to one of economic realities, i.e., a test that greatly diminishes the significance of entrepreneurial opportunity and selectively overemphasizes the significance of ‘right to control’ factors relevant to perceived economic dependency’…”

The majority claims it does not give entrepreneurial opportunity heightened consideration or raise it as a super-factor (as the court does in Fedex I) but it certainly devotes considerable space to that single factor before addressing in less detail any other. It’s difficult to imagine the majority did this unintentionally or that the board will not proceed with heavily weighing the entrepreneurial opportunity over other factors–at least in these contractor relationships.

In between 2014 and 2018 the NLRB rule gave employers pause from believing independent contractor classifications rid them of worry about unionization; but that pause is certainly over. Returning to a rule that makes it easier to avoid labor law concerns in the workplace does more than help employers sleep better at night or trim their legal budget for labor law attorneys. It incentivizes employers to structure jobs as independent contractors which in turn means fewer worker rights and less pay.

Labor and employment law bills proposed in the 2019 Colorado legislative session

Colorado starts 2019’s legislative session with a healthy list of 227 proposed bills, many including provisions affecting the state’s labor laws and employment laws. Today’s post will briefly identify and discuss the major Colorado labor law and employment law changes proposed so far this year. Denver labor law will update as these bills move through the legislature and potentially become law.

SCOTUS rejects mandatory arbitration for transportation workers classified as independent contractors

Last week the Supreme Court dropped its unanimous decision in New Prime v. Oliveira penned by Justice Gorsuch, weighing in on the application of the Federal Arbitration Act to independent contractors of a transportation company. Many liberal media outlets describe the opinion as a win for workers because the court held in favor of the workers rather than the employer. Even articles taking issue with Justice Gorsuch’s textualist approach to the Federal Arbitration Act consider the opinion a win without considering its broader effect that employer-side employment lawyers will surely grasp. Viewed from its broader consequences, New Prime is not without collateral damage.

A brief history of employment law and the Federal Arbitration Act

Mandatory arbitration became commonplace in employment contracts and employment agreements as a condition of employment after the Supreme Court heavily rewrote the Federal Arbitration Act in the 1980s.

In 1925 Congress passed the Federal Arbitration Act which enforces arbitration clauses in contracts covered by the act. The Federal Arbitration Act was designed to create a meaningful dispute resolution framework between businesses that conducted transactions across the country. It intended to avoid situations in which a dispute arose over a purchase agreement and the parties might end up fighting in court for a long period of time or maneuvering a dispute into a local court that might heavily favor one party over the other. Instead the parties could agree to have a dispute resolved quickly by an arbitrator who was impartial and likely had familiarity with transactions in that industry.

Everybody seemed to agree with this history until we reached the excess capitalism of the 1980s. In the late 1970s and early 1980s enterprising businesses, primarily in banking and lending, fought to repurpose the Federal Arbitration Act to apply to consumer transactions. Courts agreed and mandatory arbitration agreements became part of many consumer agreements for credit cards, bank accounts, utility services and sometimes even retail purchases.

Arbitration in consumer agreements provides businesses several advantages over litigation. Arbitration proceedings are often cheaper and result in smaller adverse judgments. Companies have less incentive to settle and even when they lose they lose less. Arbitration proceedings are framed by the party demanding arbitration so it is often a friendly environment and avoids courts which may be more impartial. Arbitration decisions are often not published so even when companies suffer adverse judgments they are concealed from the public which makes it harder for consumers to assess their potential relief in this forum.

Companies liked arbitration so much that they expanded mandatory arbitration to employment agreements. Employers in the 1980s and 1990s began requiring employees to sign forced arbitration agreements for employee claims under a wide range of employment law and labor law claims. This was different from labor arbitration under a collective bargaining agreement in which the union and employer negotiated the terms of arbitration proceedings. Under these forced arbitration agreements, employers held absolute control over arbitration terms. Employees signed the agreements or lost their jobs.

Circuit City v. Adams and the FAA in employment agreements

In 2001 the Supreme Court rendered judgment in Circuit City v. Adams holding that the FAA applied to employment agreements. Adams applied for a job with Circuit City in which the employment application contained a unilateral agreement to arbitrate all employment claims. Adams later filed an employment discrimination lawsuit against Circuit City, which attempted to move the lawsuit into arbitration pursuant to this agreement.

The Supreme Court majority took on a tortured reading of the Federal Arbitration Act to reach this conclusion. Within the FAA are two relevant passages:

Section 1: “…nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.

Section 2: “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

At issue in Circuit City is how expansively Section 1 limits the FAA’s application to employment contracts and the extent any employment agreement not exempted by Section 1 falls within Section 2. The majority applies two different cannons of statutory construction to give the word “commerce” two opposing definitions in the same statute. According to the majority, commerce in Section 1 must be narrowly defined because the section describes some of the workers. The applicable cannon of statutory construction mandates when a general term follows specific terms, the general term is interpreted as including items like the specific. As a result, the employees exempted by Section 1 only include employees involved in transportation (like railway workers and seamen). All other employee contracts are not exempt. Conversely, commerce in Section 2 must be expansively defined because it lacks any limiting language and the FAA intended to expansively cover the extent of Congress’s power under the Commerce Clause.

(The reasoning here is awful and well excoriated by the dissenting opinions. It is well worth exploring but beyond the scope of this post.)

As a result of Circuit City we have expansive legal protection for forced arbitration in employment with very little limitation.

New Prime v. Oliveira and forced arbitration of independent contractors

New Prime deals with relationship between the FAA and non-employee workers. Here Justice Gorsuch’s majority opinion provides further confusion into interpreting the FAA in the employment context although he finds an interpretation that favors the workers in this particular situation.

New Prime is a transportation company that hires truck drivers as independent contractors. As part of their contracts the drivers agree to arbitrate claims related to their work on an individual basis. Oliveira filed a class action lawsuit on behalf of himself and his co-workers alleging wage-based claims. New Prime sought to remove the lawsuit to arbitration and chop up the class action into individual actions under its arbitration agreement.

Justice Gorsuch applies a supposed textualist approach to determine the drivers have contracts of employment under the Federal Arbitration Agreement. He advances the position that language of the act must be interpreted within the ordinary meaning of its time. He finds that in 1925 there was no distinction between independent contractor and employee and the term employment applied to all employment relationships. Truck drivers are as well employees like railway workers and sea workers therefore they are the types of workers covered even among Circuit City‘s limited scope of Section 1. Therefore, although New Prime did not employ the drivers as employees their employment agreement fell within the FAA’s contract of employment language.

New Prime gives us an even more confusing view of the Federal Arbitration Act. Combining New Prime and Circuit City we have no consistent standard to interpret the statute. On one hand, New Prime tells us to read the statute in the context of its time but Circuit City tells us to read the statute in its modern setting in which commerce is defined in a much broader term than at the time the FAA was enacted. We are forced to read Section 2 in a post-Wickard, everything-is-commerce interpretation but read section 2 in a pre-Wickard interpretation where commerce is narrowly defined. It’s almost like this kind of textualism is goal-oriented.

Why New Prime isn’t worth quite the praise it gets

Across liberal and legal press one can quickly find piece after piece congratulating Justice Gorsuch for overlooking his traditionally pro-business position to give the day to the workers in New Prime. (For example, here, here, here, here and here.) That oversells the inevitable impact of this opinion for labor law and employment law.

Sure, New Prime is a win for workers engaged in transportation jobs like those covered by Circuit City‘s interpretation of workers covered by Section 1’s exemption. Employers may no longer get away with properly or improperly defining these workers as independent contractors, rather than employees, to force them into mandatory arbitration agreements. It does not help them gain any other protections as employees but it does avoid mandatory arbitration. This is certainly a tremendous win for transportation workers regardless of their classification as employee or independent contractor.

However, New Prime‘s interpretation of Section 1 is not without collateral damage. Although all transportation workers may fall within New Prime‘s interpretation of Section 1’s exemption it does not mean those same workers may receive exemption under state law. In the end, all these workers may find themselves in mandatory arbitration anyway. It also does not help that New Prime doubles down on the narrow interpretation of Section 1 found in Circuit City. The greatest problem with New Prime is that it leaves little question that SCOTUS definitely views independent contractor relationships as well within the FAA’s scope. Enterprising plaintiff-side employment lawyers are likely to find reason to challenge applying the FAA to independent contractor relationships particularly in light of last year’s Epic Systems opinion (and its basis in AT&T Mobility v. Concepcion) upholding class action waivers in mandatory arbitration employment agreements.