In a landmark ruling, the California Supreme Court held that courts should not consider prejudice when deciding whether a party has waived its right to compel arbitration, bringing California law in line with recently decided federal cases. (Quach v. California Commerce Club, Inc., S275121, July 25, 2024.)
Historically, state and federal courts required a party opposing a motion to compel arbitration (on the grounds that the moving party waived its right to arbitrate by starting litigation) to show that it was “prejudiced” by the delay. In other words, the party who did not want to arbitrate had to show that the moving party’s conduct had impaired the opposing party from taking advantage of the benefits and efficiencies of arbitration. And while courts generally did not consider having to pay fees and costs to be prejudicial, they did often find that being forced to respond to burdensome discovery or litigating up until the eve of trial was sufficiently prejudicial to deny sending the case to arbitration.
In 2022, the U.S. Supreme Court eliminated the prejudice consideration for cases falling under the Federal Arbitration Act (FAA). (Morgan v. Sundance, Inc., 596 U.S. 411 (2022)). Now, California has done the same. Under the California Arbitration Act (CAA), prejudice is no longer a consideration when determining whether arbitration has been waived.
In short, the Court reasoned that California policy “puts arbitration agreements on equal footing with other types of contracts.” In non-arbitration contracts, waiver does not require a showing of prejudice. Requiring that waiver requires a showing of prejudice in arbitration contracts, which would place arbitration agreements on a different, higher ground than other contracts. That, in turn, would violate that California policy.
This underscores the need for employers with arbitration agreements to move quickly in bringing motions to compel arbitration. Because an employee opposing a motion to compel arbitration no longer must show that he or she was prejudiced by the employer’s participation in litigation, it is essential that employers facing litigation immediately identify any applicable arbitration agreements and discuss strategy and next steps with counsel.
If you have questions regarding this new law and how it may affect your business, or if you do not currently have arbitration agreements with your employees and are interested in implementing them, please contact Duckor Metzger & Wynne, APLC Shareholder Katherine C. Fine at (619) 209-3058 or fine@dmwplc.com.