Transportation stocks sink after Supreme Court backs trucker who resisted being forced into arbitration after suing over wages

  • The U.S. Supreme Court on Tuesday sides with a long-haul truck driver who sued his employer for failing to pay him a minimum wage. It marks a rare win for workers at the high court.
  • The upshot of the holding is that, under the nearly 100-year-old Federal Arbitration Act, which is generally presumed to favor employers, truck drivers employed as independent contractors cannot be forced into private arbitration.
  • Following the release of the decision, shares of companies in the transportation sector lag the broader market.
People wait in line to attend the opening day of the new term of the Supreme Court in Washington, October 1, 2018. 
Aaron P. Bernstein | Reuters
People wait in line to attend the opening day of the new term of the Supreme Court in Washington, October 1, 2018. 

The U.S. Supreme Court on Tuesday sided with a long-haul truck driver who sued his employer for failing to pay him a minimum wage, handing down a decision that could have broad ramifications on the transportation sector and the economy as a whole.

In an opinion delivered for a unanimous court, Justice Neil Gorsuch held that courts must decide whether an exception in the Federal Arbitration Act, or FAA, for transportation workers applies before requiring arbitration. And, he wrote, that exception applies not just to traditional employees but also to independent contractors.

The upshot of the holding is that, under the nearly 100-year-old FAA, which is generally presumed to favor employers, thousands of truck drivers who are employed as independent contractors cannot be forced into private arbitration.

Following the release of the decision, shares of companies in the transportation sector lagged the broader market. Dow Transports finished the day down three-quarters of a percent on a positive day for the major indexes.

The outcome of the case was largely expected following oral arguments in October.

The court's ruling was narrow, leaving uncertain whether its decision would apply to truckers who did not cross state lines, according to attorney Bob Roginson of Ogletree Deakins, chair of the law firm's trucking and transportation industry group.

Nonetheless, it marks a rare win for workers at the high court. The U.S. Chamber of Commerce, a powerful business lobby, had urged the justices to rule the opposite way and said that its members had structured "millions of contractual relationships — including large numbers of agreements with independent contractors — around the use of arbitration to resolve disputes."

The ruling could boost wages in the trucking industry, experts said, a boon for truckers that is expected to lead to higher consumer prices. J. Bruce Chan, a vice president and senior analyst at Stifel Capital Markets who covers logistics firms, told CNBC in October that a ruling in favor of the trucker, Dominic Oliveira, could result in "a significant increase in cost to consumers."

The case centered on whether the FAA, which exempts from mandatory arbitration the "contracts of employment" of transportation workers, was intended to apply to independent contractors when Congress passed the law in 1925.

In an opinion rich with historical detail and citations to early 20th century legal dictionaries, Gorsuch said that it was.

"Notice Congress didn't use the word 'employees' or 'servants,' the natural choices if the term 'contracts of employment' addressed them alone," wrote Gorsuch, whom President Donald Trump appointed in 2017. "Instead, Congress spoke of 'workers,' a term that everyone agrees easily embraces independent contractors."

More arbitration rulings to come

The court's decision Tuesday will not be the last word in the matter. The court is generally flooded with arbitration cases and has taken at least three this term. Gorsuch's opinion left important questions unanswered.

"This is only the first phase of a battle," said Richard Rosenblatt, a partner at law firm Morgan Lewis who has been tracking the case. "The next phase is if the agreement is otherwise enforceable under state law."

Justice Brett Kavanaugh, Trump's second appointee to the high court, took no part in the consideration of the case because he had not yet been confirmed when it was argued. Justice Ruth Bader Ginsburg wrote a brief concurrence with Gorsuch's opinion that was consistent with her views that statutes can be interpreted to evolve with language.

The case is notable in one other respect. During his confirmation hearings, Gorsuch came under scrutiny for dissenting in the so-called "case of the frozen trucker."

In that case, which was decided in 2016, Gorsuch sided against a trucker who was fired for abandoning his delivery load to escape subzero conditions that made him fear for his life.