Supreme Court to Decide Whether Cases Must Be Stayed Pending Arbitration

The U.S. Supreme Court recently agreed to hear a case that will determine whether federal district courts must stay a lawsuit pending arbitration, or if they have the option to dismiss the case when all claims are subject to arbitration.

In Smith v. Spizzirri, delivery drivers sued IntelliQuick Delivery, an on-demand delivery company based in Phoenix, alleging the company misclassified them as independent contractors, failed to pay them minimum wage and overtime, and failed to provide paid sick leave, according to court documents.

The plaintiffs argued that the federal district court that dismissed their case should have stayed the case pending arbitration. In March 2023, the 9th U.S. Circuit Court of Appeals ruled that the lower court properly dismissed the case because all parties agreed that all the claims were subject to arbitration.

Six federal circuit courts have required a stay in this situation, while four of them have not. Companies that operate in many different states are left unsure about how to handle lawsuits and arbitration they may be facing.

“This is welcome news to a lot of employers that the Supreme Court is going to resolve the circuit split,” said Marissa Mastroianni, an attorney with Cole Schotz in Hackensack, N.J. “It will make it easier for the multi-jurisdictional employers to understand what the lay of the land is.”

The ruling could impact how much time and money employers will have to spend on enforcing their arbitration agreements.

“The case may sound super technical, but it’s very important practically,” said Patrick Bannon, an attorney with Seyfarth in Boston. “If courts must stay cases pending arbitration, employers with arbitration agreements have a more reliable way to get claims into arbitration relatively quickly. If courts can dismiss cases that are sent to arbitration, employers might have to spend additional months litigating about whether the decision to require arbitration was correct.”

Background

With an arbitration agreement, employees forgo their right to a trial in court and instead agree to bring claims in arbitration. Employers often favor arbitration because it can be a faster and less expensive way to resolve claims than litigation, and it is private, unlike public court trials. About 60 million U.S. workers are subject to mandatory arbitration, according to the U.S. Department of Labor.

Under the Federal Arbitration Act (FAA), mandatory arbitration agreements are generally deemed valid, but workers involved in interstate or international commerce are exempt. Specifically, seamen, railroad employees and other transportation workers are exempt. In 2022, the Supreme Court ruled that an airline baggage handler was exempt from the FAA because she participated in transporting goods in interstate commerce.

Meanwhile, the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act prohibits employers from enforcing arbitration agreements when an employee brings a sexual-harassment or sexual-assault claim.

A court can invalidate an arbitration agreement for being unconscionable, or unreasonably favorable to one party.

Some employers use arbitration agreements with their highly paid executives, but not their rank-and-file workers.

 Companies that require employees to sign arbitration agreements must stay abreast of state laws and ensure that existing agreements are legally compliant in the states where they operate, Mastroianni said. “That’s first and foremost what you need to worry about.”