Earlier this week, the Supreme Court reversed an order
compelling an employee to submit her FLSA claims to arbitration on the grounds
that the lower courts had improperly required a “special” showing in
arbitration disputes of prejudice to the employee before finding that the
employer had waived its rights to compel arbitration by first litigating in
court for eight months over other procedural and substantive defenses. Morgan v.
Sundance, Inc., No. 21-38 (May 23,
2022). A unanimous Court held that the FAA precludes courts
from applying a “special” waiver test for arbitration disputes which requires a
showing of prejudice before a waiver will be found if such prejudice is not
required in evaluating other types of waivers.
According to the Court’s opinion, the employee filed a class
action alleging that the employer violated the FLSA overtime provisions even
though she had signed an arbitration agreement prior to being hired. Although it could have done so, the employer
did not immediately move to compel arbitration of her claims. Instead, it moved to have her case dismissed
as duplicative of another class action.
Then, it filed an answer with affirmative defenses, none of which
mentioned the arbitration agreement.
The parties attempted to mediate their dispute and then began scheduling
discovery before – eight months after the litigation commenced -- the employer moved to stay the litigation and
compel arbitration. Although the
employee objected on the grounds that the employer had waived its right to
compel arbitration by engaging in litigation, the employer’s motion was granted
and affirmed on appeal on the grounds that the plaintiff had not been prejudiced
by the employer’s delay.
Outside the arbitration context, a federal court assessing waiver does not generally ask about prejudice. Waiver, we have said, “is the intentional relinquishment or abandonment of a known right.” . . .
. . .
But the FAA’s “policy favoring arbitration” does not authorize federal courts to invent special, arbitration-preferring procedural rules. . . . Accordingly, a court must hold a party to its arbitration contract just as the court would to any other kind. But a court may not devise novel rules to favor arbitration over litigation. . . . If an ordinary procedural rule—whether of waiver or forfeiture or what-have-you—would counsel against enforcement of an arbitration contract, then so be it. The federal policy is about treating arbitration contracts like all others, not about fostering arbitration. . . .
. . . So Section 6 [of the FAA] instructs that prejudice is not a condition of finding that a party, by litigating too long, waived its right to stay litigation or compel arbitration under the FAA.
NOTICE: This summary is designed merely to inform and alert
you of recent legal developments. It does not constitute legal advice and does
not apply to any particular situation because different facts could lead to
different results. Information here can change or be amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney.
