Don’t Delay, Arbitrate Today—Supreme Court Removes Requirement to Show Harm in Asserting Waiver of Right to Arbitrate | Dickinson Wright

Employers who wish to arbitrate disputes with their employees should assert the right to arbitrate expeditiously – a recent Supreme Court decision has made it easier for employees to demonstrate that an employer’s delay constitutes a waiver of the right to arbitrate . In Morgan v. Sundance, Inc., 142 S.Ct. 1708 (2022), the plaintiff worked as an hourly employee in the defendant’s Taco Bell franchise. When she applied for the job, she signed an agreement to “use confidential binding arbitration, instead of going to court” to resolve any disputes she had regarding her employment. Identifier. at 1711. Notwithstanding this agreement, the employee filed a class action lawsuit in federal court for alleged violations of the Fair Labor Standards Act (“FLSA”). Specifically, the employee argued that the employer violated the FLS, which requires employers to pay overtime to covered employees who work more than 40 hours in a week by recording the hours that an employee worked during one week during another week to escape the overtime requirement.

Instead of going to arbitration, the employer began mounting a substantial defense in federal court. Indeed, the employer initially proposed to dismiss the lawsuit as duplicating others. After this motion was dismissed, the employer responded to the complaint and asserted a number of affirmative defenses, none of which, however, referred to the arbitration agreement. The parties then negotiated the deal and some of the issues between the parties were resolved.

Eight months after the filing of the complaint, the employer proposed to stay the case and to require arbitration in the other cases. Unsurprisingly, the employee opposed the motion and argued that the employer had waived its right to arbitration by waiting so long to compel. The District Court applied the Eighth Circuit’s waiver test for arbitration cases, whereby a party waives its contractual right to arbitrate if it: (1) knew of that right; (2) acted inconsistently with law; and (3) “harmed the other party by his inconsistent actions”. Identifier. to 1712 (citations omitted). The district court held that the employer had waived its right to arbitration, finding that the employer’s delay had prejudiced the employee. After review, the Eighth Circuit disagreed and sent the parties to arbitration.

The Supreme Court agreed to hear the case on the sole issue of whether courts can “create arbitration-specific variations of federal procedural rules, such as those regarding waiver, based on the [Federal Arbitration Act’s] ‘policy favoring arbitration.’ Identifier. to 1712 (citations omitted). The court held that they could not, observing that “[o]Outside of the arbitration context, a federal court evaluating the waiver typically does not ask about harm. Identifier. at 1713. By requiring proof of injury before finding a waiver, a “rule found nowhere else,” the Eighth Circuit created a “tailor-made arbitration waiver rule.” Identifier. Ultimately, a “tribunal must hold a party to its arbitration contract as the tribunal would any other type. But a court cannot design new rules to favor arbitration over litigation. Identifier. The Supreme Court sent the case back to the Eighth Circuit to reconsider the case without the prejudice requirement.

Take away food:

Employers must act urgently if they wish to resort to arbitration. Prior to the Supreme Court decision in Morgan, nine federal circuits required an employee invoking a waiver to demonstrate that the employer’s delay caused harm. Now, an employee does not have to show that the delay caused him harm in any way. As a result, it will be easier for an employee to demonstrate that the employer has waived the right to arbitration while waiting to assert this right. Thus, employers with arbitration provisions in their employment contracts or employee handbooks should act urgently if they hope to enforce them.

[View source.]

Comments are closed.