Courts Cannot Make New Arbitration Procedural Rules based on the Federal Arbitration Act’s (“FAA”) “Policy Favoring Arbitration”

Shana D. Velez

Last month, the U.S. Supreme Court held that courts cannot create rules related specifically to arbitration agreements simply because the FAA favors arbitration, but courts should treat arbitration agreements the same as any other contract.[1] 

Morgan is a Fair Labor Standards Act collective action where the parties litigated for eight (8) months, including unsuccessful mediation, before Sundance filed a motion to dismiss the case, despite the existence of an arbitration agreement, which required Morgan to arbitrate her claims.[2]  Sundance eventually moved to compel arbitration  and Morgan argued that Sundance waived its right to arbitrate because of the time in the litigation, which prejudiced her in having to pay for attorneys’ fees to respond to Sundance’s motion to dismiss.  To show Sundance waived its right to arbitration, the Eighth Circuit Court of Appeals held that Morgan had to show that she had been prejudiced by the litigation, relying upon the “federal policy favoring arbitration,” despite the arbitration agreement being silent on the topic.[3] The Supreme Court, however, rejected that finding stating that Morgan only had to show that Sundance waived its rights by acting inconsistently with its right to arbitrate.[4] The situation occurs quite often, when an employer is sued, begins defending the lawsuit and later learns that the employee’s claim is governed by an arbitration agreement. 

Key Takeaways

If your company uses arbitration agreements with its employees, before defending employment lawsuits, employers should check with their human resources departments to determine if an arbitration agreement exists with the employee and the company and try to get the employee to voluntarily dismiss the lawsuit to arbitrate and, if that does not work, move to compel arbitration.  Employers may consider raising the existence of an arbitration agreement as an affirmative defense, if there is a reasonable belief that one exists with the employee.  If an arbitration agreement is found later in the litigation, the employer should file the motion to compel as soon as practicable and point the Court to facts showing that the employer did not act inconsistent with arbitration.  Consult with Campbell Litigation’s attorneys or your employment counsel on strategy development in compelling arbitration when litigation arises and an arbitration agreement may exist.

[1] Morgan v. Sundance, Inc., 596 U.S. ____ (2022).

[2] Id.

[3] Id.

[4] Id.