A Tale of Two Arbitration Cases

Jan 28, 2019 | Blog

In two recent cases involving contract disputes and arbitrability, the Supreme Court has issued two different opinions–one in favor of the arbitrator’s authority and the other in favor of the court’s authority. While the conclusions to these cases may at first appear conflicting, they are both in keeping with the statutes set down by the Federal Arbitration Act (FAA) originally enacted in 1925.

Consider the first case. Henry Schein, Inc. v Archer & White Sales, Inc. involved two disputing companies who were bound under a contract containing a mandatory arbitration clause. Due to a somewhat ambiguous caveat in the clause, Archer & White believed that the case wasn’t arbitrable—they argued that Henry Schein’s motion to compel arbitration was “wholly groundless” and should therefore be disregarded. The Supreme Court unanimously ruled against Archer & White, stating that the “wholly groundless” exception was never part of the FAA. It was decided that, according to the FAA, the courts had no right to intervene when a contract specifically delegated questions of arbitrability to an arbitrator.

Now consider the second case, New Prime v Oliveira. Mr. Oliveira, a truck driver and independent contractor who worked for New Prime, was suing the company. Because a mandatory arbitration clause existed in Mr. Oliveira’s contract, New Prime asked the court to compel arbitration under the FAA. Mr. Oliveira argued that his particular case was exempt under Section 1 of the FAA, which states that the act does not apply to “contracts of employment.” However, there was disagreement about whether “employment” also included independent contractors. Even though the contract also delegated questions of arbitrability to an arbitrator, SCOTUS determined that the question should be given to the court, ruling that what a contract mandates regarding arbitration is nullified if it falls under the exception stated in Section 1 of the FAA.

The common theme in these two outcomes is adherence to the Federal Arbitration Act. In Henry Schein v. Archer Sales, the Supreme Court made their ruling on the basis that courts cannot simply add provisions to the FAA in order to override arbitration contracts. In New Prime v Oliveira, the Supreme Court made their ruling on the basis that the court must decide if the exception in Section 1 applies to the contract before compelling arbitration. In Mr. Oliveira’s case, the Supreme Court decided to go by the general definition of the word “employment” as it was used in 1925, when the act was written. They ruled that Section 1 of the FAA superseded his contract and exempted him from arbitration.

Justice Ginsburg wrote a concurrence, citing that, “‘words in statutes can enlarge or contract their scope as other changes, in law or in the world, require their application to new instances or make old applications anachronistic.’” This measure is to keep statutory texts like the FAA from being more restrictive than they were originally intended to be. As a result, one of these verdicts broadened the jurisdiction of arbitrators and the other limited it by giving workers more access to court trials. While ironically achieving opposite end results, both rulings were in accordance with the FAA and were made with the intent of preserving the act’s integrity.  If nothing else, these two cases, decided only a week apart from each other, have surely set some thought-provoking precedents.

Should you have any questions regarding arbitration and how it can affect your business, please contact Roger E. Barton.