Employer Waived Its Right to Demand Arbitration of Employee's Workplace Claims

​An employer waived its right to invoke arbitration of a former employee's claims by unreasonably delaying its arbitration demand and acting inconsistently with an intent to arbitrate, a California appeals court recently ruled. The employer waited 17 months after the employee filed suit to seek arbitration of the claims. In the meantime, it requested a trial and engaged in pretrial discovery.

In August 2018, when the employer hired the employee as a sales associate, she signed an agreement to settle all workplace claims through binding arbitration and to waive her right to bring an action in court.

The employee resigned from her position three months after being hired. She claimed she had been subjected to ongoing, sexually explicit and demeaning comments, unwanted touching and indecent exposure from a co-worker, as well as other harassing conduct from the employer's customers.

On March 25, 2019, the employee filed a complaint against her former employer, bringing claims for violations of the California Fair Employment and Housing Act based on sex discrimination, sexual harassment and retaliation. She also raised claims for negligent hiring, supervision and retention.

On July 8, the employer, represented by counsel, answered the complaint, asserting the arbitration agreement as a defense.

On July 30, the employer filed a case management statement in which it requested a nonjury trial, estimated a trial between five to seven days, and noted that the case would be ready for trial within 12 months of the date of the filing of the complaint.

On Aug. 14, the court scheduled a jury trial for July 20, 2020.

One month later, the employee began the pretrial discovery process, serving the employer with deposition notices, two sets of written interrogatories and a request for production of documents. Two months after that, the employer replied to the discovery requests. Although it objected on a variety of grounds, it did not assert a right to arbitrate the claims.

On Jan. 13, 2020, the employer filed a substitution of attorney, listing itself as its new attorney.

On June 22, the employee stated that the employer, a business entity, could not represent itself in court but must appear through legal counsel.

On Aug. 24, the employer filed a substitution of counsel, naming a new attorney.

On Sept. 8, the parties agreed to delay the trial so the employer's new attorney had time to prepare. The trial date was set for May 10, 2021.

On Oct. 5, 2020—about 17 months after the employer was served with the complaint and seven months before the new trial date—the employer moved to compel arbitration and to stay the action under the Federal Arbitration Act (FAA).

The trial court denied the motion and the employer appealed.

The Law on Waiver

The appellate court first noted that, under the FAA, the right to arbitrate may be waived—either expressly or by implication.

The appeals court then explained that, in determining whether a party has waived its right to arbitrate, a court will apply a multifactor test, considering the following:

• Whether the party's actions are inconsistent with the right to arbitrate.
• Whether the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate.
  
• Whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay.
• Whether a defendant seeking arbitration took advantage of judicial discovery procedures not available in arbitration.

The court further noted that the U.S. Supreme Court recently decided that the party claiming a waiver of the right to arbitrate need not show that it has been harmed by the other party's actions.

The employer's long delay in seeking arbitration cannot be squared with an intent to arbitrate, the court said. By the time the employer filed its motion, 17 months had passed since it was served with the complaint.

In addition, as the litigation progressed for 17 months, the employer responded in several ways to the lawsuit, but did not raise its right to arbitration. This was true, the court said, even though the employer presumably was aware of its right to arbitrate when it asserted the parties' arbitration agreement as a defense in its answer to the complaint.

The employer attempted to justify its delay based on its lack of counsel for several months during the case as well as pandemic-related reductions in court operations. But, the court said, the employer did not explain why it delayed in obtaining new counsel. And pretrial court proceedings—as opposed to trials—were not impacted by the pandemic, so the court rejected the employer's second argument as well.

The absence of a reasonable explanation for delay is a significant factor weighing in favor of finding waiver, the court said.

In addition, the employer's conduct was inconsistent with its alleged intent to arbitrate. The employer demanded a trial and engaged in discovery. Although it objected to the discovery on a variety of grounds, it never once suggested that discovery should be barred because the case had to be arbitrated.

The appellate court affirmed the trial court's decision refusing to order arbitration.

Davis v. Shiekh Shoes LLC, Calif. Ct. App., No. A161961, (Oct. 31, 2022).

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.