Many employers today have implemented arbitration programs mandating that workplace-related disputes brought by or against their employees be decided by an arbitrator. Arbitration can provide for efficient resolution of disputes in a confidential setting.  It is also possible through the use of a carefully worded agreement to limit disputes to just one employee’s claims and prevent an employee from bringing claims on behalf of others in a class action.

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In the event of an employee claim filed in court despite the existence of a signed arbitration agreement, the employer cannot sit on its hands and delay seeking arbitration or it may lose the right to do so.  An employer can choose not to enforce the arbitration agreement – and there may be situations when it is advisable to make that choice – but once an employee engages in the litigation process in court for any extended period of time, the employer cannot later decide arbitration is preferable and seek to move the dispute to that forum.

But how long is too long to wait to decide if arbitration is the right path? Courts have differed on this point, but a recent published decision from the Ninth Circuit Court of Appeals held that an employer waived its right to compel arbitration in a lawsuit alleging it staffed its salon business with unpaid student workers when it waited 17 months before seeking to compel arbitration.  Calling the move an attempt to manipulate the system, the appeals court said a California federal court was correct to deny a bid by Amarillo College and its president, Gary Yasuda, to compel arbitration after partly favorable ruling for the plaintiffs on a motion to dismiss.  The Ninth Circuit said allowing a party to delay seeking arbitration until after a court rules against it, or letting it “belatedly” change its mind, would be “manifestly unfair” to the other side.  Paige Martin et al., v. Gary Yasuda et al., case number 15-55696, in the U.S. Court of Appeals for the Ninth Circuit (July 21, 2016) (opinion available here: )

The original complaint in the action was filed in October 2013 and the district court granted a motion to dismiss in July 2014. A second amended complaint was filed in August 2014, and while the employer mentioned arbitration in its response to that pleading, it did not move to compel arbitration of the plaintiff’s claims until March 2015

Both the district court and the appellate court denied the attempt to move the case into arbitration because sending the case to arbitration after this long, and after a ruling that was partly in favor of the students, would not be fair.  Moreover, the employer’s actions were inconsistent with the right to arbitrate.

Employers who are named as defendants in court actions brought by former employees need to quickly assess whether the employee is party to an arbitration agreement, whether the agreement covers the claims at issue, and whether the employer wishes to enforce the agreement in this instance and move the case to arbitration.  Experienced counsel should be consulted regarding the benefits and drawbacks of proceeding to arbitration versus staying in court in each situation.  Once that decision has been made, an employer cannot later attempt to choose another path.