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U.S. Supreme Court Holds that Arbitration Agreements are Not Above Contract Law

Agreeing to “terms and conditions” of participation has become a near-daily occurrence in the modern world. We communicate assent to terms and conditions when we sign the lease for a new apartment, order food from a delivery site, and click a box stating “I agree to the terms and conditions” when visiting many websites. The list goes on. One place where terms and conditions are especially prevalent is when people start new jobs. Often, mandatory arbitration clauses are hidden in the stack of paper that employees are required to sign at the outset of employment.  Employees are rarely provided with any notice or explanation regarding the significance of agreeing to mandatory arbitration. In this context, millions of Americans have given up their right to a day in court and to have their claims of discrimination and retaliation heard and addressed by a jury of their peers. The U.S. Supreme Court recently gave a small victory to these employees.

This victory came in the case of Morgan v. Sundance Inc. In this case, Morgan sued her employer, a Taco Bell franchise owner, for improperly compensating her for overtime worked. Morgan filed suit in court and Sundance answered her complaint and engaged in litigation with Morgan. Eight months into litigation, Sundance tried to stop the litigation and dismiss the case from court and instead start the process over in a private arbitration pursuant to an arbitration agreement signed by Morgan.

In this case, Sundance argued that arbitration agreements are special and are not subject to the normal rules governing contracts between parties. The Supreme Court disagreed and held that arbitration agreements do not receive special treatment and that if Sundance waived its right to litigate the case in arbitration under the contract by delaying in asserting this right under standard contract law then it was too late to force arbitration. In other words, arbitration agreements are not special in some sense that renders them exempt from standard contract law principles.  Prior to this case, the Supreme Court had consistently found in favor of employers seeking to use arbitration agreements to bar employees from bringing their claims in court.  In this context, this small victory is particularly meaningful.

Notably, Congress has taken notice of this tendency by employers to use arbitration agreements to bar an employee’s day in Court and recently passed legislation which precludes employers from requiring employees to only bring sexual harassment claims in arbitration and therefore always permits an employee to bring a sexual harassment claim in court.

If you encounter an issue with an arbitration agreement that you’ve signed in the context of your employment you should contact an attorney who specializes in employee law.  The Employee Rights Group routinely assists employees to assert their rights, including in those situations where the employee has signed an arbitration agreement.

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