An employer did not waive its right to compel arbitration under an employment agreement by seeking to set aside a default in an employment discrimination suit brought against it by its employee. Due to an “administrative oversight,” the employer’s counsel did not become aware it had been served with a complaint until after a default had been entered. The employer was successful in its effort to set aside the default, however, the employee argued that the employer’s participation in the litigation resulted in a waiver of its right to compel arbitration.
The Eleventh Circuit disagreed. A two-part test controls whether a party has waived its right to arbitration. The first prong inquires whether, under the totality of the circumstances, the party has “acted inconsistently with the arbitration right.” This occurs when the party “substantially invokes the litigation machinery prior to demanding arbitration.” The second prong asks whether the invocation of litigation has prejudiced the other party.
The employer’s participation in the litigation was not substantial enough to be considered inconsistent with an intent to arbitrate. In so holding, the court noted that moving to set aside the default was the only procedure the employer could have used to permit it to seek arbitration of the employee’s claims. Because the employer’s participation in the litigation failed to satisfy the first prong of the two-part test, the employer did not waive and was permitted to enforce its right to compel arbitration. Sherrard v. Macy’s Sys. and Tech. Inc., Case No. 17-11766 (11th Cir. Feb. 5, 2018).
This post written by Benjamin E. Stearns.
See our disclaimer.