Supreme Court Determines that a Showing of Prejudice Is Not Necessary to Waive Right to Arbitration

Dear Friends and Clients,

For those of you who use (or plan to use) arbitration clauses in your tour participant contracts, a recent decision of the United States Supreme Court highlights the importance of invoking arbitration at the earliest opportunity.

In Morgan v. Sundance, Inc.,142 S.Ct. 1708 (2022), the plaintiff employee had agreed to use binding arbitration to resolve any employment dispute. Despite that agreement, the plaintiff brought a nationwide collective action against Sundance for violation of the Fair Labor Standards Act. Sundance, initially, defended itself against the suit as if no arbitration agreement existed. Eight months later, Sundance moved to compel arbitration under the Federal Arbitration Act (FAA). The plaintiff opposed the motion, arguing that Sundance had waived its right to arbitrate by litigating so long.

The Supreme Court rejected a then-existing Eighth Circuit rule which required lower courts, in the context of a motion to compel arbitration, to look at whether the plaintiff had been “prejudiced” by Sundance’s actions. The Supreme Court then held that “prejudice” is not a condition of finding that a party – by litigating too long – waived its right to compel arbitration under the FAA.

The point, of course, is that it is important to avoid taking any action pursuant to and in a litigation instead of invoking arbitration as soon as possible. Generally we recommend invoking arbitration in the initial pleading – usually in a motion to compel arbitration.

Aside from Morgan, there are other recent cases cutting down on the use of arbitration clauses, but the timeliness of invoking arbitration is now of critical importance.

Finally, we note that every arbitration clause should contain a waiver of class actions.

Of course, we would be happy to discuss these issues with you at your convenience.

With best regards,

The Travel Group:

Rodney Gould
[email protected]
(617) 228-4443

Robert Mueller
[email protected]
(617) 228-4453