By: Cameron Van and Kyle Petersen
Seyfarth Synopsis: Earlier this year, in New Prime, the Supreme Court decisively held that the Federal Arbitration Act’s § 1 exemption for transportation workers engaged in foreign or interstate commerce applied to independent contractors and employees alike. While New Prime presented a bump in the road to arbitration, a recent appellate court decision in New Jersey provides a road map for enforcing arbitration agreements with transportation workers who are otherwise subject to FAA’s § 1 exemption. In Colon v. Strategic Delivery Solutions, LLC, the court held that even if the FAA § 1 exemption applied to the plaintiff delivery drivers, the parties’ arbitration agreement was enforceable under the state analog to the FAA.
Strategic Delivery Solutions (“SDS”) is a freight forwarder and freight broker that coordinates local delivery services of general merchandise and pharmaceutical companies. Several of the delivery drivers with whom SDS contracted brought wage and hour claims premised on the allegation that SDS had misclassified them as independent contractors. SDS sought to enforce their arbitration agreements, arguing that the FAA § 1 exemption did not apply because the drivers only provided “local delivery services.” The trial court agreed, dismissed the complaint, and compelled the plaintiff drivers to individually arbitrate their claims. The drivers appealed.
The three-judge appellate panel thought the lower court rushed to judgment with respect to application of the FAA § 1 exemption and remanded for further consideration. That victory, however, is a hollow one for the drivers because the court went on to hold that, even if the FAA § 1 applies, the parties’ arbitration agreement is nevertheless enforceable under the New Jersey Arbitration Act (NJAA), which does not have an exclusion for transportation workers.
The court rejected the plaintiffs’ argument that the FAA preempted the state arbitration statute. In reaching its conclusion, the panel relied on prior Supreme Court pronouncements that the FAA does not occupy the entire field of arbitration, as well as Third Circuit case law specifically addressing FAA preemption and the NJAA.
Plaintiff next tried to avoid arbitration by arguing that the NJAA did not apply here because it was not mentioned anywhere in the parties’ arbitration agreement. The court disagreed, explaining that “the parties should have understood that the NJAA would apply to their agreement” because the agreement “expressly provided that it was governed by the state law where the vendor resided,” which in this case is New Jersey. Also helpful to the court’s analysis was language in NJAA stating it applies to all independent arbitration agreements “made on or after January 1, 2003.”
Finally, in their appeal the drivers also argued that they had not waived their right to have their statutory wage claims heard by a jury or the ability to pursue their claims on a class or collective basis. The appellate panel disagreed, holding that the drivers’ contracts at issue had clear language indicating that plaintiffs “unambiguously waived any right to a trial by jury in a suit” and “agreed to adjudicate any dispute” in bilateral arbitration, even statutory wage claims (Internal marks omitted).
Before taking a victory lap, it bears noting that one day after Colon was released, a different New Jersey three judge appellate panel held in an unpublished decision (Arafa v. Health Express Corp.) that the plaintiff truck driver’s arbitration agreement was not enforceable under the FAA and his claims could proceed in court. The Arafa panel did not reference the NJAA nor whether it applied in that case.
Even with the Arafa decision, Colon offers a roadmap for drafting and enforcing arbitration agreements with transportation workers. As the court in Colon reminds us, the FAA does not necessarily preempt state arbitration statutes. While best practice is to incorporate applicable state arbitration statutes into agreements with transportation workers, the absence of such reference may not foreclose enforcement. Arbitration agreements should also include language reflecting the workers’ clear and unambiguous waiver of a jury trial on covered claims and wavier of the ability to proceed on a class or collective basis.
For more tips on managing transportation contractors post New Prime, see our previous blog here.