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January 18, 2019

THE UNITED STATES SUPREME COURT SAYS THAT SOME TRANSPORTATION WORKERS CANNOT BE FORCED INTO ARBITRATION BECAUSE OF A FEDERAL ARBITRATION ACT EXCEPTION

The Federal Arbitration Act in certain circumstances gives the court the authority to compel arbitration, when a party brings a case before the court but, there is a valid arbitration agreement in place that states that type of dispute between those parties should be handled through arbitration. However, the Federal Arbitration Act (“Act”) also states that the Act does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

This was the crux of the issue decided by the Supreme Court in the recent case New Prime Inc. v. Oliveira, No. 17-340, 2019 WL 189342 (U.S. January 15, 2019). Mr. Oliveira worked as an independent contractor for New Prime as a truck driver. He filed a lawsuit alleging that New Prime denied him and other drivers lawful wages by failing to pay minimum wage. He filed his lawsuit as a class action, also alleging that he and other drivers were misclassified as independent contractors and were really employees of New Prime. New Prime asserted that Mr. Oliveira should be compelled to arbitrate his claims because of the arbitration provision in his independent contractor agreement. Mr. Oliveira asserted that because of the exception in the Federal Arbitration Act: that the Act did not apply to contracts of employment of transportation workers, the court could not compel arbitration.

A threshold question examined by the Supreme Court was whether the court or the arbitrator had the authority to decide the gateway issue of whether the exception for transportation workers in the Federal Arbitration Act was applicable to the Oliveira dispute. The Supreme Court decided that this question is properly decided by the court, holding that in order to decide whether arbitration should be compelled it must first know whether the contract at issue falls within the any of the Act’s exceptions.

One of New Prime’s main arguments was that Mr. Oliveira had an independent contractor agreement and not an employment agreement with New Prime and therefore the exception for “contract of employment” with transportation workers (engaged in interstate commerce) in the Federal Arbitration Act did not apply. The Supreme Court disagreed with this argument in an in-depth analysis of the term “employment” historically and the use of the term “worker” within the statute, paying particular attention to the meaning of those terms at the time the Act was enacted in 1925. The Supreme Court concluded that in 1925 when the Act was adopted “employment” was more or less a “synonym for “work.”” Therefore, Mr. Oliveira’s work relationship with New Prime (even if he was correctly categorized as a independent contractor) fell within the Act’s exception.

In an important decision for transportation workers seeking to bring class actions in court instead of being forced into a single party (and often costly) arbitration process, the Supreme Court leaves us with this:
When Congress enacted the Arbitration Act in 1925, the term “contracts of employment” referred to agreements to perform work. No less than those who came before him, Mr. Oliveira is entitled to the benefit of that same understanding today. Accordingly, his agreement with New Prime falls within §1 [of the Federal Arbitration Act’s] exception, the court of appeals was correct that it lacked authority under the Act to order arbitration…

What does this mean for workers?
In the very least, transportation workers, whether employees or independent contractors, have the opportunity to avoid an arbitration clause and have their cases heard in court as a class or collective action.

What does this mean for employers? Be aware that an otherwise valid arbitration provision may not be enforceable against a transportation worker engaged in interstate commerce. Even if an arbitration provision is included in the company’s employment or independent contractor agreements, employers should ensure that the company’s practices minimize the risk for collective or class actions as it may have to litigate such claims in court.

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January 16, 2019

IS AN EMPLOYER REQUIRED TO PAY A BONUS AFTER AN EMPLOYEE IS TERMINATED?

What compensation is rightfully earned and owed to an employee after employment ends is a serious question for both the company and the former employee. This issue is a common problem when a promise to pay a bonus is involved. The question then becomes;
Does an employee have a right to a bonus that is promised or earned before the employee is terminated, but was not actually paid out prior to termination.

In a recent case decided by the 5th Circuit on October 18, 2018, Sellers v. Mineral Technologies, Inc., CETCO Energy Services Company, L.L.C., Civ. A. No. 17-20555, 2018 WL 6266528 (5th Cir. Oct. 18, 2018), the Court reviewed a decision by the Southern District of Texas denying a terminated employee a bonus payment after he was terminated. The Southern District found that because the employment agreement at issue required the employee to be employed on a certain date in order to receive the bonus, and he was not because he had been terminated, there was no breach of contract and the bonus payment was rightfully denied. Sellers appealed this determination.

The 5th Circuit Court reversed the Southern District finding that (1) a required thirty day notice of termination stated in the employment agreement rendered Sellers still technically employed on the date necessary to receive his bonus payment and (2) even if the condition of employment on the certain date was not “technically met” “..if one party prevents another from performing a condition precedent or renders its fulfillment impossible, then the condition may be considered fulfilled.”

To provide some background into the Sellers case, Sellers was a Vice President of Business Development – Produced Water Equipment. He had an employment agreement that stated he would receive a potential bonus as part of his compensation (specifically 5% of the net margin of sales made under his supervision). When the company was bought by another company, Sellers was terminated without cause. Sellers sued, in part, for breach of contract stating that his former employer breached his employment agreement and owed him a $428,681.71 bonus payment.

The district court decided that Sellers was not entitled to the bonus payment because his employment agreement stated that he had to be still employed on a certain date in order to receive it. Since he was terminated before that, the district court found there was no breach.

On appeal, the 5th Circuit reversed the district court’s decision because the employment agreement also stated that if an employee was terminated without cause, he/she had to be provided thirty (30) days advance notice. Therefore, the 5th Circuit concluded that the effective date of Sellers’ termination was really thirty days after he was originally notified. This close reading of the employment agreement language was the turning point for the appellate decision. Because of the additional thirty (30) days’ notice, Sellers was in fact “employed” during the time necessary to qualify for his bonus. On appeal, the 5th Circuit Court concluded that even though Sellers was not technically employed on the date required to receive the bonus, it was appropriate to find that condition was fulfilled under the circumstances: that Sellers was terminated without cause and the company’s actions (through no fault of his own) prevented him from performing or made it impossible for him to fulfill the “condition precedent” (being employed on a certain date).

Overall, this case makes an important point about the careful reading and analysis of employment agreements when attempting to determine whether a bonus payment is owed after termination.

 

 

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