Is Your Arbitration Agreement Up to Date?

There has been a lot of movement in the legal landscape surrounding arbitration recently, and I mean a lot.  These are not typically headline grabbing cases or laws, but for employers with arbitration agreements and dispute resolution programs in place, they signal the importance of regularly reviewing and updating these documents.  Alternatively, for employers who do not currently use arbitration, these cases may (or may not) make arbitration a more attractive alternative for quickly and efficiently resolving employment disputes.

Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (March 2022).  The Act, passed with bi-partisan support, amends the Federal Arbitration Act to provide that, at the election of the person asserting a claim, no mandatory arbitration agreement “shall be valid or enforceable with respect to a case … [that] relates to [a] sexual assault dispute or [a] sexual harassment dispute.” A “sexual assault dispute” is defined as a dispute involving a “nonconsensual sexual act or sexual contact,” as such terms are defined in the federal sexual abuse criminal statute or any similar state law. A “sexual harassment dispute” is defined as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal or State law.”  Notably, the new law, as written, applies to any “case” that relates to a sexual harassment or assault dispute. This raises a question whether the Act will encompass other types of employment claims when brought together with a sexual harassment or assault claim.  If it does, the practical effect will be to allow an employee to exclude a larger universe of claims from arbitration. If not, employers may have to decide whether to litigate the sexual harassment claim in court while simultaneously arbitrating the other claims.

Badgerow v. Walters (March 2022).  The U.S. Supreme Court held that federal jurisdiction to confirm or vacate an arbitral award under Sections 9 and 10 of the FAA must exist independent of the underlying controversy to establish federal subject-matter jurisdiction.  What this means in practice is that unless there is a federal question on the face of the petition, or complete diversity between the parties and the arbitration award exceeds $75,000, federal courts likely will not have subject matter jurisdiction over petitions to confirm or vacate an arbitration award.

Morgan v. Sundance, Inc. (May 2022).  The U.S. Supreme Court recently (and unanimously) ruled against a fast-food franchise owner in a procedural dispute over whether a wage-theft lawsuit could be compelled to arbitration.  In the case, the company waited eight months to move the case to arbitration, during which time the parties began to litigate the case and also attempted mediation.  The lower court applied an arbitration specific waiver test and concluded that the employer had waived its right to arbitrate because the delay had prejudiced the employee. The Supreme Court jettisoned this test, concluding that a court cannot apply an arbitration specific waiver test, which conditioned a waiver of the right to arbitrate on a showing of prejudice.  Overall, this decision likely means that it just go easier for a court to find waiver in the arbitration context, especially if there is a delay in moving the case to the arbitral forum.

Barrows v. Brinker Restaurant Corp. (May 2022).   This Second Circuit case dealt with a common scenario (especially since the pandemic) wherein the plaintiff-employee denied any knowledge of electronically signing an arbitration agreement.  The court held that the plaintiff’s sworn declaration constituted enough evidence to create a material fact question on whether a valid arbitration agreement existed.  This is a common scenario in the arbitration world and should compel employers to take a second look at their electronic signing procedures, especially with respect to arbitration.  First, employers should be uniform in obtaining signatures and not mix and match electronic and physical signatures.  Second, access to documents like arbitration agreements should be carefully considered to avoid any suggestion of a false signature.  Employers may also want to consider additional steps to enhance current electronic signature procedures, like two factor verification.

Southwest Airlines Co. v. Saxon (June 2022).  The U.S. Supreme Court ruled against Southwest Airlines, which sought to compel individual arbitration of FLSA collective action claims asserted by a cargo loader. The Supreme Court held that the cargo loader belongs to the “class of workers engaged in foreign or interstate commerce” and was therefore exempt from the FAA’s arbitration requirement.  In doing so, the Court rejected Southwest’s attempts to limit the exemption to include only workers that personally and physically transport goods across state lines as too narrow.

Viking River Cruises v. Mariana (June 2022).  The U.S. Supreme Court held that the FAA preempts California law as set out in the Iskanian case, which had held that an employer cannot require an employee to arbitrate individual claims under California’s Labor Code Private Attorney General Act (PAGA), without also allowing the employee to arbitrate representative claims under PAGA as well.  The Supreme Court overruled this caselaw and ultimately upheld Viking’s right to compel arbitration of an employee’s individual PAGA claims, citing the parties’ right under the FAA to decide which claims they will arbitrate and which claims they will not.  In doing so, the plaintiff lost standing to litigate any representative PAGA claims in court.  This was a highly anticipated opinion and is widely seen as a victory for California employers.