Waiving Arbitration Goodbye: When Does an Employer Waive the Right to Compel Arbitration, and Who Decides?

• Citation: Vol. 28 No. 2
• Publication year: 2014
• Author: By Joel M. Grossman

Waiving Arbitration Goodbye: When Does an Employer Waive the Right to Compel Arbitration, and Who Decides?

By Joel M. Grossman

Joel M. Grossman is a mediator and arbitrator with JAMS in Los Angeles. He has been selected four times as one of the Top Neutrals in California by the Daily Journal. For more information please contact www.grossmanmediation.com.

Many current or former employees who are subject to an arbitration agreement nevertheless initially file a lawsuit against their current or former employer in court. Should the employer wish to exercise its right to arbitrate the dispute, it is then up to the employer to file a motion to compel arbitration. If the arbitration agreement is deemed by the court to be enforceable, the court will probably grant the motion.

What happens, however, if the employer delays invoking the arbitration agreement? What if the employer sends the court complaint over to its outside counsel, who doesn't know about the arbitration clause and thus begins to defend the action in court? Then suppose that the employer remembers to tell outside counsel about the arbitration clause. At what point is it too late, that is, at what point has the employer waived its right to enforce the arbitration agreement and try the case before an arbitrator instead of in court? The short answer is that at almost any point—even after years of court litigation—absent a showing of prejudice, the employer is not deemed to have waived the right to compel arbitration, and the motion to compel will likely be granted.

As stated both by the California Supreme Court and the Ninth Circuit, there is a strong public policy favoring enforcement of agreements to arbitrate. Although in certain circumstances a court might determine that the party seeking to compel arbitration has waived that right, the California Supreme Court made clear in Saint Agnes Medical Center v. Pacificare of California that "waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof."¹

In the recent Ninth Circuit case of Richards v. Ernst & Young,² the court used virtually the same language as the California Supreme Court. The Richards plaintiff filed a wage and hour class action on behalf of herself and other employees. Her lawsuit was subsequently consolidated with two earlier-filed class action cases against the same employer. Years later, the employer filed a motion to compel arbitration. The district court denied the motion to compel but the Ninth Circuit reversed, ordering the matter to arbitration.

Although the Ninth Circuit's decision does not state how long the court actions had been pending prior to the motion to compel arbitration, at the time the motion was filed, the matter had been litigated at the trial court level to the extent that the trial judge had set a hearing date for plaintiff's motion for class certification. In a footnote, the court of appeals stated that "[b]ecause the district court should have compelled arbitration, and because the arbitration agreement between Ernst & Young and Ms. Richards precludes class arbitration, we also vacate the district court's order certifying a class of litigants with Ms. Richards as its representative."³ In fact, the trial court had heard and granted the motion for class certification on the same day that it heard and denied the employer's motion to compel arbitration.⁴

As explained by the court, the employer filed the motion to compel arbitration after the United States Supreme Court had issued its decision in AT&T Mobility LLC v. Concepcion.⁵ Apparently, after learning of the Supreme Court's decision, and in light of the arbitration clause that included a class action waiver, the employer hoped to gain the benefit of forcing the plaintiff to arbitrate her claim individually. The plaintiff employee opposed the motion to compel arbitration as untimely and prejudicial.

While the Ninth Circuit opinion does not discuss the amount of time that the case had been in litigation before the employer filed its motion to...