Supreme Court accepts third arbitration dispute this term

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The Supreme Court has agreed to hear an arbitration dispute brought by drivers against a delivery company.

The drivers allege that the company misclassified them as independent contractors, failed to pay minimum and overtime wages, and failed to give them paid sick leave. They sued, arguing their dispute should be heard in the courts, but federal courts have ruled they must proceed to arbitration.

Companies often prefer arbitration to the courts, saying the process resolves cases with greater speed and reduced expense. Some consumer advocates prefer the courts because, in their view, the judicial system provides private citizens and consumers with more options and is less likely to side with the companies being sued.

The decision to accept the case came as the U.S. Department of Labor is attempting to implement a new rule that encourages employers to classify independent contractors as employees.

Independent contractors perform services for companies but are not deemed employees. Many companies retain them instead of hiring employees in order to save money. Contractors have to pay their own taxes. After the year ends, they receive a 1099 IRS form if they billed more than $600.

The new rule, which is scheduled to come into force on March 11, comes in the wake of California’s controversial law known as AB5 that virtually outlaws independent contracting and clamps down on the gig economy. Critics say the state law is intended to benefit labor unions and will drive up costs for businesses. The Supreme Court has turned away challenges to the state law, most recently in June 2022.

A group of freelancers filed a lawsuit against the federal rule this month in federal court in Georgia.

In the case at hand, petitioners Wendy Smith, Michelle Martinez, and Kenneth Turner are current and former delivery drivers for co-respondent IntelliQuick Delivery Inc., a company active in the U.S. Southwest.

The petitioners sued the company in Arizona state court over violations of federal and state employment laws. The company removed the case to federal district court and then moved to compel arbitration and dismiss, arguing that all of the claims were “subject to mandatory arbitration.”

The petitioners acknowledged the claims were arbitrable but argued the Federal Arbitration Act (FAA) “required the district court to stay the action pending arbitration rather than to dismiss the action.”

Despite this, the court dismissed the case and ordered it transferred to arbitration.

The court granted the petition for certiorari, or review, in Smith v. Spizzirri on Jan. 12. No justices dissented. The court did not explain its decision. At least four of the nine justices have to approve a petition for the case to advance to the oral argument stage.

The legal issue is whether Section 3 of the FAA requires federal district courts to stay a lawsuit pending arbitration or whether district courts retain discretion to dismiss when all claims are subject to arbitration, according to court documents.

The FAA lays down procedures for enforcing arbitration agreements in federal court.

Section 3 of the Act states when a court determines that a dispute is subject to arbitration, the court “shall on application of one of the parties stay the trial of the action until [the] arbitration” has concluded.

Six federal courts of appeal interpret Section 3 to require a federal district court to stay the proceeding, while four courts of appeal have carved out an exception to the section’s requirement giving courts discretion to dismiss—not stay—if the entire dispute is subject to arbitration.

A panel of the U.S. Court of Appeals for the 9th Circuit considered itself bound by circuit precedent to uphold the district court’s “discretion to dismiss,” even though the plain text of the Federal Arbitration Act appears to require a stay.

A two-judge concurrence to the 9th Circuit’s majority opinion said, “the courts of appeals are divided” and suggested that “the Supreme Court … take up this question.”

The company had urged the Supreme Court to dismiss the petition.

The 9th Circuit’s ruling was “correct,” the company said in a brief.

“Courts have always had inherent authority to dismiss cases that should never have been filed.

“Nothing in the plain text of the FAA overrides a district court’s authority to do so just because an arbitration is underway. It merely prohibits a court from proceeding with a ‘trial’ on some claims while others are being arbitrated.”

Attorneys Comments

Attorneys for both sides in Smith v. Spizzirri provided comments by email to The Epoch Times on Jan. 21.

The drivers’ attorney, Daniel Geyser of Haynes and Boone in Denver, Colorado, said the case was important.

“The issue has profound effects on all parties’ rights under the FAA, and a dismissal disrupts Congress’s considered scheme. We are grateful the Court granted review, and we look forward to litigating the case on the merits,” he said.

One of the company’s co-counsels, Laurent Badoux of Littler Mendelson in Phoenix, Arizona, was pleased the case will be heard.

“We look forward to persuading the Court that it makes no sense to force a district court automatically to keep a case sitting idle on its busy docket when all agree that all claims in the case belong in arbitration, and nothing in the Federal Arbitration Act requires it,” Mr. Badoux said.

Smith v. Spizzirri is the third arbitration case the Supreme Court has accepted for oral argument in the current term that began on the first Monday in October 2023. No oral argument has yet been scheduled.

The oral argument is set for Feb. 20 in Bissonnette v. LePage Bakeries Park St. LLC.

The case is about whether an exemption in the FAA from mandatory arbitration of employment-related legal claims for transportation workers is restricted to employees of companies in the transportation sector.

The oral argument is scheduled for Feb. 28 in Coinbase Inc. v. Suski.

Coinbase, a major cryptocurrency exchange, wants to compel disgruntled customers to submit to private arbitration instead of adjudicating their dispute in the courts.

This article by Matthew Vadum appeared Jan. 21, 2024, in The Epoch Times.