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Supreme Court Rules on Dispute Over Mandatory Arbitration in Employment Law Claims

The parties to employment law disputes in New Jersey and around the country may agree to use alternative dispute resolution (ADR) instead of the traditional litigation process. Many employers favor one particular form of ADR known as arbitration. Employment contracts often include clauses stating that any dispute must go to arbitration before — or instead of — a lawsuit. Mandatory arbitration is common in many types of employment law claims, supported by the Federal Arbitration Act (FAA). The U.S. Supreme Court recently ruled on a dispute over what an employer must do when they claim that an arbitration clause bars an employee from filing a lawsuit. The ruling in Morgan v. Sundance, Inc. allows the employee to make the case that the employer waited too long before filing a motion to dismiss the suit. If you are involved in a workplace dispute with your employer, reach out to a New Jersey employment lawyer to discuss the matter.

The arbitration process resembles litigation in some ways. An arbitrator conducts a trial and makes a recommendation, much like a judge issues a ruling or verdict. If the parties agreed in advance that arbitration would be binding, courts have very little authority to modify or vacate the arbitrator’s decision.

An employee who is subject to a binding arbitration clause has almost no recourse outside of the arbitration process itself. While arbitration agreements are voluntary, job applicants are rarely in a position to negotiate specific terms. They can either sign the agreement or look for a different job.

The FAA broadly favors the validity of arbitration agreements. If a party to an arbitration agreement files a lawsuit before attempting arbitration, § 4 of the FAA allows the other party to the agreement to file a motion to compel arbitration and stay the judicial proceeding.

The Supreme Court’s Morgan decision began as a putative class action for overtime compensation under the Fair Labor Standards Act. The plaintiff signed an arbitration agreement when the defendant hired her. She filed her lawsuit without first submitting the claim to arbitration. Rather than immediately filing a motion for a stay under § 4 of the FAA, however, the defendant engaged in the litigation process for about eight months.

When the defendant eventually moved for a stay, the plaintiff argued that it had waived its rights under the FAA. The trial and appellate courts ruled against the plaintiff. Both courts held that the plaintiff had to prove that the defendant’s delay in moving for a stay had prejudiced her rights. They found that she had not met this burden.

The Supreme Court reversed the lower courts in a unanimous ruling. It found that nothing in the FAA requires he plaintiff to show prejudice. No other federal law requires a showing of prejudice for a similar claim. The defendant’s own conduct is the only factor a court may consider when determining whether it waived mandatory arbitration. The court sent the case back to the trial court for a new hearing.

Wage and hour, discrimination, harassment, and other disputes with employers require experienced and skilled advocacy. The employment lawyers at the Resnick Law Group help New Jersey and New York workers assert their rights against unlawful workplace practices. To schedule a confidential consultation to see how we can help you, please contact us today online, at 973-781-1204, or at 646-867-7997.

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