Changing the Arbitration Landscape

Just a couple weeks ago, the Supreme Court of the United States issued a significant decision that looks to change the landscape of arbitration for years to come.

In the case Morgan v. Sundance, Inc., SCOTUS turned over the table that is the Federal Arbitration Act. Morgan was an hourly worker at a Taco Bell owned by Sundance. Her employment included an arbitration provision. Despite that, she filed a case in federal court. The parties commenced the litigation process and only after 8 months did Sundance decide to invoke the arbitration provision. The lower court, following existing precedent in that circuit, determined that Sundance’s conduct (engaging in the litigation) prejudiced Morgan and operated as a waiver of the arbitration agreement.

SCOTUS did not agree. Justice Elena Kagan, speaking on behalf of a unanimous court, ruled that the lower courts are not allowed to “create arbitration-specific variants of federal procedural rules” and that determining a party’s conduct operated as a waiver was incorrect. In other words, the long-held belief that federal law promotes and fosters arbitration should actually be that federal law treats arbitration agreements like all other contracts.

The impact of this decision will call into question all arguments (and decisions) that utilize an unfair prejudice element when determining if an arbitration clause should be enforce.