Mediation & Arbitration / 4 min read
As we begin a new year, it can be helpful to reflect on important decisions that impact the field of arbitration. During the 2023-24 Term, the U.S. Supreme Court issued three unanimous decisions that fall into this category.
The Bissonnette Decision: Transportation Worker Exemption
In Bissonnette v. LePage Bakeries Park Street, LLC, 601 U.S. 249 (2024), two franchisee distributors with distribution rights in Connecticut filed a lawsuit in federal court claiming a bakery was violating state and federal wage laws. The franchise agreements contained an arbitration provision governed by the FAA. As such, the bakery moved to dismiss the case and compel arbitration. In response, the distributors claimed they fall under the "transportation worker" exemption in Section 1 of the FAA. The exemption provides that "nothing [in the FAA] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."
The district court granted the Bakery's motion to compel arbitration, and the Second Circuit affirmed on the ground that the two distributors "are in the bakery industry," and "the FAA exempts only 'workers involved in the transportation industries.'" The Supreme Court rejected the Second Circuit's industry-focused standard.
In its opinion, the Supreme Court unanimously held that Section 1 only requires that employees be "transportation workers" not that they work in the "transportation industry" to fall within the exemption. This holding, which is largely derived from the Court's previous decision in Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022), does not significantly expand the scope of the transportation worker exemption. Instead, the Supreme Court simply reiterates that for purposes of Section 1, courts should focus on what the worker does, not what the employer does.
The Bissonnette decision is important for companies with employee arbitration agreements to understand. In short, transportation workers are exempt from arbitration agreements in their employment contracts, meaning that businesses selling goods in interstate commerce may have exempt employees even if the business itself is not engaged in the transportation industry.
The Smith Decision: Shall Stay not Dismiss
In Smith v. Spizzirri, 601 U.S. 472 (2024), current and former delivery drivers for an on-demand delivery service, filed suit in state court alleging violations of federal and state employment laws. After removing the case to federal court, the employer moved to compel arbitration and to dismiss the underlying suit. The drivers conceded their agreement required arbitration but argued the underlying suit should be stayed not dismissed. The district court dismissed the suit, and the Ninth Circuit affirmed citing the court's power to dismiss inactive suits without prejudice.
Section 3 of the FAA provides that when a matter is subject to arbitration, a 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[.]" In its opinion, the Supreme Court clarified that the use of the word "shall" in Section 3 "creates an obligation impervious to judicial discretion." As such, when a party requests a stay pending arbitration, the court must stay the proceeding and cannot dismiss the suit.
The Supreme Court also addressed the District Court's assertion that even under the FAA, courts retain inherent authority to dismiss. Relying on its prior ruling in Degen v. United States, 517 U.S. 820 (1996), the Court rejected this assertion reasoning that the plain language of the statute expressly "overrides any discretion a district court might otherwise have." The Court acknowledged that district courts still retain authority to dismiss cases subject to an arbitration agreement if there is a separate reason to dismiss unrelated to arbitrability such as a jurisdictional challenge.
The Coinbase Decision: Courts Decide in Absence of Clear Agreement
In Coinbase Inc. v. Suski, 602 U.S. 143 (2024), users of cryptocurrency exchange platform, Coinbase, filed a class action suit alleging violations of California laws related to a sweepstakes promotion. The Coinbase User Agreement contained an arbitration clause that delegated to the arbitrator the power to decide whether a dispute arising under the agreement is arbitrable. However, the Official Rules for the sweepstakes included a forum selection clause specifying that all disputes relating to the contract would be resolved in California courts, creating a conflict between the two agreements.
After the suit was filed, Coinbase moved to compel arbitration under the arbitration provision of the User Agreement. The claimants, however, sought to remain in federal court under the forum-selection clause of the sweepstakes rules. The district court denied Coinbase's motion holding that the court must decide which contract governed the dispute, and the Ninth Circuit agreed.
The Supreme Court affirmed, stating that when multiple agreements with conflicting dispute resolution clauses exist, it is for the courts to determine which contract governs the dispute. The holding did not turn on whether the forum-selection clause superseded the delegation provision. The Court held that the question of which conflict-resolution provision controlled boiled down to whether the parties had agreed to arbitrate the arbitrability of their dispute, "and, per usual, that question must be answered by a court." Meaning, by "default," it is courts who decide arbitrability.
This decision underscores the importance of drafting arbitration provisions to avoid ambiguity and inconsistencies. Where there are multiple agreements between the parties, arbitration provisions must be clear and consistent across the board.