A May 16, 2024 decision by the U.S. Supreme Court settles an ongoing question among the District and Circuit courts concerning the staying of court proceedings when an employment-related dispute is subject to arbitration.  

The case Smith v. Spizzirri involved claims of misclassification relating to independent contractors. The question before the Court was whether a trial court has the discretion to dismiss a lawsuit on the basis that all the claims are subject to arbitration. The Court, interpreting the Federal Arbitration Act (FAA), holds that lower courts do not have such discretion.  

According to the Court, absent a separate unrelated reason to dismiss, when a federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the lower court proceeding pending arbitration, the lower court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration.  

A plain reading of Section 3 of the FAA makes clear that, when any issue in a suit is subject to arbitration, the court “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” In the Court’s view, “the use of the word “shall” “creates an obligation impervious to judicial discretion.”

What Does It Mean? 

In an employment-related context, Smith gives certainty to court proceedings involving questions of arbitrability. For example, a plaintiff-employee initiates a lawsuit in state/federal court alleging employment-related claims without disclosing the claims are subject to a previously signed arbitration agreement. In response, the defendant-employer files a motion to compel the matter into arbitration in accordance with the terms of the arbitration agreement. The plaintiff then requests that the trial court issue a stay of the proceedings pending the outcome of the defendant’s motion; a motion which is typically granted so long as “the applicant . . . is not in default in proceeding with the arbitration.”  

Post Smith, this nearly automatic procedural sequence of events will streamline court processes and serve the practical purpose of ensuring the parties can return to court if arbitration fails to resolve a dispute while allowing courts to maintain their supervisory role for arbitrations as set forth in the FAA. This procedural certainty will also help employers better understand and manage the litigation process.