Many employers have implemented mandatory arbitration programs to resolve disputes with employees. When sued by an employee, an employer with a mandatory arbitration provision occasionally delays seeking an order compelling the lawsuit into arbitration. When a delay occurs, the party seeking to keep the case in court (usually the employee), may resist arbitration arguing that the employer waived its right to have the case decided in arbitration by delaying seeking to compel the case into arbitration.
Historically, to show that a party waived its right to arbitrate rather than litigate the dispute, the party opposing arbitration had to show that the party seeking arbitration waived its right to arbitrate by acting inconsistently with that right –usually through delay and proceeding in the court system. Additionally, the opposing party also had to show that it was prejudiced by the inconsistent actions or delay. Showing prejudice was very difficult. So long as the party seeking arbitration had not sought rulings on dispositive issues or waited an unreasonably long period (often more than six months of engaging in litigation or right before trial), courts rarely found that a party was prejudiced by the delay in seeking arbitration.
Last month, the U.S. Supreme Court dispatched the prejudice element required to show waiver. No longer is a party required to show that it was prejudiced by its adversary’s delay in seeking arbitration. The prejudice requirement is an arbitration-specific procedural rule that is not authorized by the Federal Arbitration Act. Thus, an employer who wants to preserve its contractual right to arbitrate its dispute with an employee should make that request timely and avoid acting inconsistently with the right to arbitrate.
You can read the entire Supreme Court opinion in Morgan v. Sundance, Inc. here.