SCOTUS: The regular rules apply to waiver of arbitration

Yesterday, a unanimous Supreme Court issued an opinion in Morgan v. Sundance, Inc. The plaintiff filed a Fair Labor Standards Act (FLSA), nationwide, collective action, wage and hour claim against her employer, a Taco Bell franchise, in federal court. But, wait! She signed an arbitration agreement as part of her the employment application process.

Justice Kagan authored
the opinion.

Ordinarily, under the Federal Arbitration Act (FAA), the employer could get the suit tossed from federal court and sent to arbitration. Here, the employer first litigated the case for a bit. It filed a motion to dismiss, answered the complaint (without raising arbitration as an affirmative defense), mediated, discussed settlement . . . and only then, after eight months of litigation, did the employer move to stay the litigation and compel arbitration. 

The Eighth Circuit analyzed whether the employer had waived its right to arbitration by looking at two factors:

• Did the party know of the right and act inconsistently with that right?; and
• Was the other party prejudiced by the inconsistent actions?

The first factor is just standard federal waiver analysis for issues other than arbitration. But the second factor was an extra proverbial thumb on the scale that the court only applied to waiver of arbitration. The Eighth Circuit justified this extra factor base on the FAA's "policy favoring arbitration."

Well, SCOTUS disagrees. "the FAA’s 'policy favoring arbitration' does not authorize federal courts to invent special, arbitration-preferring procedural rules." Courts must instead strip away the arbitration-only prejudice requirement and instead focus on the conduct of the party that has potentially waived its right to arbitration. In other words - apply the regular waiver rules, not arbitration-specific rules.