Supreme Court considers trucking case that could rattle the economy

Supreme Court considers trucking case that could rattle the economy 1

The case turns on whether Oliveira was properly categorized as an independent contractor, and, if so, whether he is entitled to a court hearing on his claims or if he must submit to arbitration. Arbitration is generally preferred by employers as a more efficient dispute resolution mechanism, although critics say it can serve as a shield for unfair corporate practices.

At issue in the case is the meaning of the nearly 100-year-old Federal Arbitration Act, which exempted certain types of transportation workers from mandatory arbitration agreements. Specifically, the law exempts “contracts of employment.” Much of the battle being waged is whether, in 1925, that phrase would have included independent contractors or only employees.

While it is not possible to guess how a justice will vote based on their questions at oral argument, the court’s traditional conservatives seemed skeptical of the trucking company’s argument that “contracts of employment” only applied to employees.

“Simply because someone would be considered or not considered an employee doesn’t necessarily answer the question of whether it’s a contract of employment,” Chief Justice John Roberts said to the attorney for New Prime, Theodore Boutrous, Jr., on Wednesday. “People think naturally of employing an independent contractor.”

Justice Neil Gorsuch, Trump’s first appointee to the court, asked Boutrous about “the fact that” there was “a lot of historical evidence at the time of the statute in question that ‘contract of employment’ may have swept more broadly?”

If independent contractors are exempt from the FAA, the knock-on effect for the trucking industry and the economy overall could be significant. Given other headwinds facing the transportation industry, like capacity shortages and trade war fears, the worry is that consumers could see an increase in prices of “10, 15, 20 percent,” according to J. Bruce Chan, a vice president and senior analyst at Stifel Capital Markets, who covers logistics firms.

“Could it force higher wages? Yeah, absolutely, it could. Would that be a good thing to have higher wages? Yeah, I think it could be. But I think this would be the wrong way to bring about higher wages,” Chan said. He added that normal supply and demand forces are better suited to drive up wages.

The industry has seen a shortage in drivers get worse year after year, as low wages have failed to attract new entrants to a notoriously difficult job that can involve being on the road for weeks or months at a time.

Some trucking companies have started offering higher wages and bonuses. In an industry with slim margins, many firms have turned to independent contractors, who can cost firms as much as 20 percent less in wages, benefits and other costs than employees, according to Chan.

Some of those independent contractors represent small fleet owners looking to build their own trucking business by contracting out to multiple firms, though that model has been on the decline since the 1970s.

In this case, Oliveira has argued that he was mis-classified, because his work was “substantially identical to the job responsibilities of employee drivers.” New Prime dictated Oliveira’s schedule, vacations, home time, and monitored his vehicle with an electronic tracking device.

Some justices seemed skeptical that an employer could avoid a court hearing on a dispute by classifying a worker as an “independent contractor,” even if the work they did was similar to the work done by traditional employees.

Justice Sonia Sotomayor, who was appointed by President Barack Obama, asked Wednesday if there was “any other area of law where we take the party’s label, ’employee’ versus ‘independent contractor,’ and give it binding effect?”

“Your Honor, I can’t think of one,” said Boutrous, the attorney for New Prime.

There are no solid estimates for the number of independent contractors in the trucking industry, and official numbers are dated, but Chan estimates more than half of the transactions in the space involve an independent contractor. More than half a million trucks were operated by independent contractors in 2002, according to a tally by the Census Bureau.

“We are ultimately looking at the inability of goods to move, or at least a significant increase in cost to consumers,” Chan said. “Target, Walmart, a mom and pop trinket store selling porcelain goods on their web store, they are all going to see an increase in costs from truckers, and eventually that will get passed along to the consumer.”

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