The Federal Arbitration Act and Independent Contractors
41 Pages Posted: 31 Aug 2018 Last revised: 4 Oct 2018
Date Written: August 28, 2018
The misclassification of employees as independent contractors is one of the most serious problems affecting the American workforce. Wrongly labeling workers as independent contractors deprives them of important employee benefits, civil rights, and wage and hour protections. It deprives the federal and state governments of billions of dollars in tax revenue annually. While workers can seek redress in the courts, businesses are trying to take that right away as well by forcing workers to submit their disputes to binding mandatory arbitration under the Federal Arbitration Act (FAA). Section 1 of the FAA, however, creates an exemption for transportation workers, as it states “nothing herein contained shall apply to contracts of employment of seamen, railroad employees or any other class of workers engaged in interstate commerce.”
This term, the Supreme Court is poised to decide whether businesses can evade this exemption by labeling their workers as independent contractors. In other words, it will consider whether the phrase “contracts of employment” is limited to contracts with workers who satisfy the legal definition of employee, or whether it was intended to apply to all transportation workers, including independent contractors. Although the Court’s recent history of consistently issuing pro-arbitration decisions may suggest that it is inclined to limit the exemption to employees, this essay argues that would be a mistake. The commonly-understood meaning of “contracts of employment” at the time of the FAA’s adoption in 1925, the Act’s legislative history, and policy concerns of preventing companies from intentionally mislabeling employees as independent contractors all favor interpreting Section 1 to apply to all transportation workers, regardless of their status. Such a result is both consistent with the FAA and can mitigate the ongoing exploitation of workers by their employers.
Keywords: employment, civil procedure, legal history, dispute resolution, arbitration, contract
JEL Classification: K31, K40
Suggested Citation: Suggested Citation