Do Not Waive Your Right to Arbitrate

06/16/2016 / David Hammargren

Employers may have a contractual right to arbitrate claims, but that right can be waived. In the context of an alleged wrongful termination, the United States Court of Appeals for the Eighth Circuit recently concluded that an employer had done just that – waived its right to arbitrate. Contractors and employers can learn a great deal from the court’s decision in Messina v. North Central Distributing, Inc. (dba Yosemite Home Décor), which would apply to any contractual dispute which involves an arbitration clause.
 
In Messina, the employee and employer had an enforceable arbitration agreement. Upon termination, however, the former employee sued his former employer in state court. The employer removed the case to federal court, filed an answer, and moved to transfer the case to California. Only after the employer lost the motion to transfer the case did it try to compel arbitration. The court concluded that the employer had waived its right to arbitration because it had acted inconsistently with that right and prejudiced the former employee.
 
The employer waived its right to arbitrate by:
 
·               Failing to mention “arbitration” as one of its twenty-four affirmative defenses stated in its answer.
·               Participating in a pretrial scheduling conference and jointly submitting a Rule 26(f) report without mentioning arbitration.
·               Filing a motion to transfer the case to California – again, without making any reference to arbitration.
·               Waiting until it lost its transfer motion before bringing up for the first time the idea of arbitration.

The court found it significant that the employer had “prejudiced” its former employee by making him spend “considerable time and money obtaining new counsel, partaking in pretrial hearings, and responding to the transfer motion.”
 
This decision is important for project owners, contractors, and subcontractors who frequently use arbitration as a means to resolve disputes. By participating in litigation, employers can waive their right to arbitrate, leaving them vulnerable to what could be the increased costs, delays, and complexities of litigation.