Appellate Division Holds that Transportation Workers Must Arbitrate on Individual Basis Notwithstanding the Federal Arbitration Act’s Exclusion for Transportation Workers

In New Prime Inc. v. Oliveira, 586 U.S. __, 139 S. Ct. 532, 543-44 (2019), the United States Supreme Court held that § 1 of the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 to 16, prescribes that transportation workers may not be compelled to arbitrate their disputes by virtue of the FAA – notwithstanding their status as independent contractors or the existence of a delegation clause granting an arbitrator the authority to decide whether the parties’ dispute is subject to arbitration.  The decision represents a rare win for workers in its recent wave of pro-employer arbitration rulings in federal court.  However, the New Jersey Appellate Division’s subsequent decision in Colon v. Strategic Delivery Solutions, LLC, __ N.J. Super. __ (App. Div. June 4, 2019) effectively nullifies Oliveira in regard to New Jersey transportation workers based on its interpretation of the New Jersey Arbitration Act (“NJAA”), N.J.S.A. 2A:23B-1 to -32.  Employers in the transportation and logistics industry should review this decision for a primer on the latest issues surrounding arbitration. 

In Colon, truck drivers for Strategic Deliver Solutions, LLC (“SDS”), a licensed freight forwarder and broker, filed a class action suit claiming that SDS violated the New Jersey Wage Payment Law and Wage and Hour Law by paying them as independent contractors as opposed to employees.  SDS moved to dismiss the action and to compel arbitration on an individual basis pursuant to the “Independent Vendor Agreement for Transportation Services” (the “Agreement”) that the plaintiffs had executed.  In that Agreement, the plaintiffs agreed to “waive any right to a trial by jury in any suit filed hereunder and agree to adjudicate any dispute pursuant to [p]aragraph 20 . . . .”  Paragraph 20 provided, among other things, that the parties “agree[d] to comply and be bound by the [FAA]”; agreed to abide by the “Rules for Commercial Arbitration of the American Arbitration Association (“AAA”) in effect at the time such arbitration is initiated”; agreed that the question of arbitrability shall be delegated to an arbitrator; and agreed that any arbitration or suit “shall be conducted and resolved on an individual basis only and not on a class-wide, multiple plaintiff, collective or similar basis unless mutually agreed to in writing by all interested parties.” The parties further agreed that the law of the signatory’s home state would apply. 

The Appellate Division vacated the trial court’s order granting SDS’s motion to dismiss and compel arbitration, and remanded the matter for consideration of whether the plaintiffs are exempt under § 1 of the FAA; that is, whether they were providing transportation services on an interstate basis pursuant to the principles set forth in Oliveira.  The Appellate Division then proceeded to address the critical issue:  whether, notwithstanding the applicability of § 1 of the FAA, the plaintiffs would still be required to arbitrate their wage-and-hour claims on an individual basis pursuant to the NJAA.  The Appellate Division answered that question in the affirmative, concluding that the plaintiffs’ acknowledgement that the Agreement would be governed by New Jersey law reflected their understanding that the NJAA would apply.  Ibid.  The panel was unpersuaded that the Agreement’s reference to the FAA indicated otherwise. 

The Appellate Division further held that the arbitration provision satisfied the prerequisites for the formation of a valid contract under New Jersey law, which, in the specific context of arbitration, requires clear and unambiguous language that the signatory understands that arbitration constitutes the waiver of the right to a jury trial and judicial forum.  In connection with the waiver of class proceedings, the panel found that the waiver was “clear and ambiguous,” and distinguished the holding in Muhammad v. County Bank of Rehoboth Beach, 189 N.J. 1, 15-16 (2006) that class-arbitration waivers in adhesive consumer contracts are unconscionable. 

Following Oliveira, transportation workers are no longer required to arbitrate wage-and-hour claims on an individual basis pursuant to an otherwise valid arbitration agreement under the FAA.  However by invoking the NJAA, Colon provides the transportation industry an independent basis to enforce their contractual agreements within New Jersey.