To Arbitrate, or Not to Arbitrate, That is (Sometimes) the Question
Although arbitration is not a new concept, increasingly, employers are requiring employees to enter into arbitration agreements as a condition of employment. Arbitration is a process that takes conflicts out of the courts and places the decision in the hands of a neutral decisionmaker (or a panel of decisionmakers) known as an arbitrator. Ordinarily, the parties come to an agreement on the arbitrator, and often the employer will pay the arbitrator’s fees. Arbitration can be less expensive than litigating in court, although there are still costs associated with the process (the cost of the arbitrator and costs related to discovery, including depositions, being among the chief costs). In addition, arbitration can lead to a quicker resolution, particularly given the backlog of cases due to the COVID-19 pandemic. It is easier to schedule an arbitrator than to schedule hearings and a trial with the courts. Arbitration also generally has its own rules of evidence and discovery, simplifying the process. For employers, one principal benefit of arbitration is that it keeps the matter out of the public eye, as arbitrations are confidential proceedings. If arbitration is binding, the arbitrator’s decision is generally final, as there are limited rights to an appeal.
Sometimes, despite the existence of an agreement to arbitrate claims, employers will decide to allow a claim to proceed to litigation through the courts. There are a variety of reasons for an employer to make this decision, including the costs associated with arbitration, a desire to retain appeal rights, and a desire to engage in a standard discovery process set by the federal or state rules of civil procedure and evidence. There are occasions where employers determine that they want to enforce the arbitration provision after a period of litigating in the courts. As a recent United States Supreme Court decision demonstrates, however, employers should use caution when making the decision of litigating or arbitrating a matter.
In Morgan v. Sundance, Inc., 596 U.S. ____ (2022), the Court examined one aspect of a party deciding to arbitrate after conducting litigation. The Court noted that lower courts have created a rule of waiver specific to the arbitration context to answer the question of whether a party requested to arbitrate too late. Many courts, including the 11th Circuit Court of Appeals (Florida is in the 11th Circuit), have held that “[a] party can waive its arbitration right by litigating only when its conduct has prejudiced the other side.” Morgan, at *1. The Court examined the Federal Arbitration Act (“the Act”), enacted in 1925 and amended since then, and determined that the Act does not authorize federal courts to create such an arbitration-specific rule. Id., at *1-2. The Act “protects the integrity of many arbitration agreements by making them binding and limiting the reasons for which courts can review and set aside arbitration awards.” “Federal Arbitration Act,” Cornell University Law School Legal Information Institute, https://www.law.cornell.edu/wex/federal_arbitration_act (last visited May 26, 2022). In Morgan, the plaintiff filed a claim pursuant to the Fair Labor Standards Act and litigated the matter in the federal district court for approximately eight months before the employer sought to stay (pause) the litigation and arbitrate the matter. Morgan, at *2. The Court noted that requiring a showing of prejudice is not generally a feature of federal waiver law, and it held that there was no such requirement under the Act. Id., at *3-4. The Court noted that when courts review the issue of waiver, ordinarily the focus is on the actions of the party who held the right (here, the employer), not the impact on the other party. Id., at *5. The Court noted that the Act’s “‘policy favoring arbitration’ does not authorize federal courts to invent special, arbitration-preferring procedural rules.” Id., at *6 (citation omitted). The Act is intended to ensure that arbitration agreements are treated like other contracts. Id. The Court reversed the appeals court and remanded (sent back) the case to determine if the employer had waived its right to arbitrate the matter. Id., at *7.
Answering the question of to arbitrate or not to arbitrate can be difficult, but it does not have to lead to existential angst. Whether you are an employee bound by an arbitration agreement or an employer considering crafting such an agreement, the attorneys at Jill S. Schwartz & Associates are well-versed in this area of the law. We are here to help you navigate these complicated waters and avoid a sea of troubles. If you have any questions or concerns regarding this topic, or any topic related to labor and employment law, please contact us.