WolfePack Wisdom

In a unanimous decision issued on May 23, 2022, the U.S. Supreme Court reversed a long-standing requirement in several circuits that parties opposing arbitration demonstrate prejudicial harm before an arbitration clause is considered waived. Morgan v. Sundance, Inc. involved an employment dispute in which the employer engaged in litigation for eight months before seeking to compel arbitration under a provision in the parties’ employment agreement. The employee argued that by doing so, the employer waived its right to arbitration. The Eighth Circuit Court found no waiver because the employee failed to demonstrate any prejudice. Although prejudice is not part of federal waiver law, the Eighth Circuit (like courts in several other circuits) imposed the prejudice requirement based on the federal policy favoring arbitration, evident in the Federal Arbitration Act (FAA). The Supreme Court reversed the Circuit Court and held that the FAA does not authorize courts to create “novel” procedural rules that favor arbitration. The holding acknowledges that arbitration agreements should be placed “upon the same footing as other contracts.” The key takeaway is that when an arbitration agreement exists, parties facing litigation should promptly decide whether to invoke it and, if so, to move immediately to do so.