Applies to: All Employers
Effective: May 23, 2022
Employer arbitration agreements are fairly common in today’s employment relationships with employees. In most federal circuit courts, if an employer delays enforcing an arbitration agreement when a claim is made, the arbitration agreement may not be enforced if the delay harmed the employee. In others, this requirement is not present. In Morgan v. Sundance, Inc., the U.S. Supreme Court sought to resolve the split among the circuit courts. Specifically, the Court stated that arbitration agreements must be interpreted like any other contract, and federal courts cannot create arbitration-specific rules of interpretation based on the FAA’s policy favoring arbitration.
There, an employee brought a class action wage and hour claim in federal court, despite having signed an arbitration agreement at the commencement of employment. The employer defended itself in litigation and waited eight months before seeking to enforce the arbitration agreement. The appellate court evaluated the claim based on the presence of harm to the employee and found none; the employee appealed.
Generally, there is no specific harm requirement under federal law addressing waiver. Courts historically implemented the requirement of harm based on the FAA’s policy favoring arbitration. Ultimately, the Supreme Court said that no such requirement is allowed. Courts cannot create new rules to favor arbitration over litigation. “The federal policy [under the FAA] is about treating arbitration contracts like all others, not about fostering arbitration.”
Action Items
- Review enforcement of arbitration agreements with legal counsel.
- Subscribers can call our HR Hotline at (833) 268-5531 for further assistance.
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