As reported multiple times in EmployNews, the legal wars over the enforceability of mandatory arbitration agreements with employees continue unabated. These agreements allow employers to move claims by employees to private arbitration rather than allowing the court system, and especially juries, to decide on the merits of the claims. On Monday, the U.S. Supreme Court unanimously found that an employer can waive its right to compel arbitration, even when the employee cannot demonstrate any prejudice from the initial use of the courts.
In Morgan v. Sundance, Inc., the plaintiff was an employee of a Taco Bell franchisee who filed a class action suit alleging overtime violations. Although she had signed a mandatory arbitration agreement upon commencement of employment, the employer initially defended the claim in court, filing a motion to dismiss the claim, and after that motion was denied, filing an answer with affirmative defenses. Almost eight months after the complaint was filed, the defendant finally moved to compel arbitration, but the district court denied this motion, concluding that the employer had waived its right to arbitrate the claim.
The Eighth Circuit Court of Appeals reversed this decision, holding that employers only waive their right to compel arbitration when they act inconsistently with that right and when the plaintiff demonstrates prejudice as a result of the delay. In this case, the plaintiff could not demonstrate such prejudice, and the Eighth Circuit granted the motion to compel arbitration.
The Supreme Court had little difficulty reversing this decision. The Court found that federal court procedural rules do not require a demonstration of prejudice. If the court finds that the employer unreasonably delays invoking the arbitration clause, it will be barred from asserting it at a later date. The Supreme Court remanded the case for findings based on this legal conclusion.
Employers defending claims by employees should make an initial determination whether the employee has signed an enforceable arbitration agreement and, if so, whether the employer elects to compel arbitration. Delaying this determination and participating in the court litigation process can preclude a later attempt to enforce the arbitration provision.