Employers sometimes prefer to settle disputes with their employees through arbitration rather than before a jury. Such a private tribunal can streamline discovery procedures, provide faster resolution, and theoretically avoid the uncertainty and emotional appeals inherent in allowing a jury to decide an employment dispute such as a complaint of discrimination. Although employment arbitration agreements generally remain enforceable under the Federal Arbitration Act (“FAA”), this is not due to a lack of effort on the part of the legislatures. state and federal. Whether it’s the federal government amending the FAA to ban pre-dispute arbitration agreements in sexual harassment cases (previously covered by HR Legalist here), California’s attempt to expressly ban mandatory arbitration agreements like condition of employment, or New Jersey’s attempt to accomplish the same thing But with a little more subtlety, binding arbitration agreements for employees are increasingly under attack.
Recently, the United States Supreme Court in Morgan v. Sundance, Inc. has created another potential pitfall for employers in this area when it has been easier for them, perhaps inadvertently, to waive their rights under an otherwise valid arbitration agreement. Known in legalese as a “waiver”, a court will not enforce an arbitration agreement (or any other contract) when a party to the agreement, which is almost always the employer, takes action that is inconsistent with the intention to exercise its rights. right to arbitration. The doctrine aims to prevent an employer from dipping their toe in court water with a dismissal motion, then turning around and seeking to move the case to arbitration if they don’t get the result they want. he wishes in court. In other words, don’t play Hokey Pokey; your left foot is either in or out. The employer must choose a place and stick to it.
Until recently, establishing a waiver required not only showing such an inconsistent action, but also that the employer’s action must have had a negative impact on the employee’s case, a term called ” harm “. In other words, the employer’s action must have mattered to the employee in some way. The Supreme Court of Morgan unanimously eliminated this requirement. Instead, when the employer filed a motion to dismiss in the trial court and participated in unsuccessful mediation, and then only sought to submit the case to arbitration after eight months, whether this caused harm to the employee was considered irrelevant to whether the employer acted in a manner inconsistent with its rights under the arbitration agreement, thus the The question of waiver is analyzed with respect to any other contract. In short, the issue of waiver in the context of arbitration agreements no longer has an additional “harm” requirement not found with respect to any other contract.
What does this mean for employers? While it’s easy to agree with the Supreme Court’s decision in the unsympathetic scenario where an employer tries to get the apple bitten, that’s not always the case. Sometimes arbitration agreements are misplaced or buried in a voluminous personal file, only to be discovered after litigation in court is already underway. The harm requirement provided a safety net for employers to avoid an inadvertent waiver of their contractual rights in such a scenario, but Morgan eliminated that lifeline. It is therefore critical that employers, upon receiving notice of a lawsuit, immediately conduct a search for applicable arbitration agreements and promptly provide those agreements to their attorney so that all options remain on the table to defend the lawsuit.