Q: In a unanimous opinion, the U.S. Supreme Court held that employers who do not act promptly to invoke an arbitration clause may be held to waive arbitration. What does this mean for my company?
A: As noted in our colleagues’ blog post, on May 23, in a unanimous opinion, the U.S. Supreme Court held that employers who do not act promptly to invoke an arbitration clause may be held to waive arbitration. In so holding, the Court resolved a circuit court split over whether a party arguing waiver had to demonstrate prejudice. The Court held that prejudice was not a requirement. The Court’s holding departs from its generally pro-arbitration holdings over the last 15 years.
The opinion is instructive in both employment law and arbitration law. The Court held that federal courts may not make up new procedural rules for interpreting arbitration agreements based on the Federal Arbitration Act (FAA)’s policy favoring arbitration. The Court rejected the Eighth Circuit’s requirement that a showing of prejudice was needed to waive a right to arbitration, explaining that because the usual waiver rules do not include a prejudice requirement, a federal court cannot create one in the arbitration context. Employers that may have relied on prior caselaw and thus elected to sit back and first roll the litigation dice now act at their peril in so doing.
Background
Sections 3 and 4 of the FAA allow a defendant to file a motion to stay litigation and compel arbitration if a dispute is governed...
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