From Lexology, Stinson Leonard Street LLP discusses a decision by the 4th Circuit Court of Appeals that says an employer waived its rights to compel arbitration essentially by being sneaky and the court did not want to give the employer a perverse incentive to wait as long as possible to compel arbitration. They write:
The Fourth Circuit set the stage for its discussion by noting that litigants may waive their rights to arbitration by “substantially utilizing the litigation machinery.” Without citing any further case law about waiver, the opinion proceeded to review the significant extent of the club’s use of “litigation machinery” (summarized above). The court was particularly upset at the apparent gamesmanship:
The only possible purpose of the arbitration agreements, then, was to give [the club] an option to revisit the case in the event that the district court issued an unfavorable opinion [on summary judgment]. In other words, Crazy Horse did not seek to use arbitration as an efficient alternative to litigation; it instead used arbitration as an insurance policy in an attempt to give itself a second opportunity to evade liability.
In response to the club’s argument that it could not have moved to compel arbitration until the entertainers who had actually signed the agreements opted into the case, the court suggested that it should have informed the district court of its intentions so that the court did not waste judicial resources. In addition, the court did not want to “give defendants a perverse incentive to wait as long as possible to compel arbitration.”
At the close of this waiver discussion, the court veers into what seems to be the heart of the matter: its conclusion that the arbitration agreements were “misleading” and “sham agreements.” The arbitration agreements told the dancers that they only reason they could keep tips and set their own schedules was because they were independent contractors, and that would change if they joined the Degidio lawsuit. The court noted that information was false. Furthermore, the court was upset that the agreements were presented to plaintiffs “in a furtive manner,” evading the district court’s ability to supervise contact between the potential plaintiffs and counsel. “The setting here was ripe for duress.” However, the court does not undertake any analysis of unconscionability or other bases to find the agreements unenforceable under South Carolina law. It just affirms the decision to deny the motion to compel arbitration.
Read the full story at: 4th Circuit Finds Club Waived Right To Compel Arbitration Of Exotic Dancers’ Claims