Too Late to Compel Arbitration? Think Again!

Foley & Lardner LLP

In recent years, more and more employers are considering requiring employees to bring any claims arising out of the employment relationship in a private forum such as an arbitration. The American Arbitration Association provides a helpful guideline for drafting mandatory dispute resolution provisions. Some of the benefits of arbitration are well known: among other things, arbitration proceedings are confidential, efficient, and tend to be less expensive. Arbitrations also do not include a jury, potentially eliminating much of the uncertainty and unpredictability of litigation from an employer’s perspective. With the Supreme Court repeatedly indicating that courts should enforce arbitration agreements because the Federal Arbitration Act provides that arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,” arbitration agreements are becoming an increasingly attractive option for employers.

But what happens when an employer does not realize that an employee has agreed to a mandatory arbitration clause until after a lawsuit has already been commenced? Is the employer out of luck, and required to abandon arbitration and proceed to a jury trial instead?

Not necessarily. A party may be able to invoke a mandatory arbitration provision and compel arbitration after a lawsuit has been filed – even years afterwards and well into the litigation. We recently dealt with this precise issue and succeeded in enforcing a mandatory arbitration provision four years after a former employee had commenced suit against our client in federal court. The case involved claims for sexual harassment and sexual discrimination brought by a former employee against a fashion and photography studio and its CEO. During discovery, the studio located an employment agreement signed by the former employee on her hire date, which included a mandatory arbitration provision. We immediately filed a motion to compel arbitration, seeking to enforce the agreement and to transfer the case to arbitration. The employee opposed the motion, arguing that it would be inequitable to compel arbitration at that stage in the proceedings. Ultimately, the court agreed with the studio and granted our motion to compel arbitration. In so doing, the court rejected the employer’s argument that the right to compel arbitration had been waived, noting the strong public policy favoring arbitrations and the lack of any meaningful prejudice to the employee. As a result, the case was tried before a single arbitrator – and away from a jury. And as an added bonus, we prevailed in the arbitration, persuading the arbitrator to find for our clients on virtually all of the employee’s claims.

Our recent experience thus suggests that employers who realize after litigation is well underway that the employee agreed to a mandatory ADR procedure should not necessarily assume it is too late to enforce their rights. We of course do not suggest that an employer should delay in attempting to enforce an arbitration agreement it knows to exist, particularly where converting a lawsuit to an arbitration can have significant, positive benefits for the employer.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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