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Pair of SCOTUS Cases Hone Arbitration Law

By June 15, 2022No Comments

Two new Supreme Court decisions will make it easier for some employees to keep their cases in court, and out of arbitration. In Southwest Airlines Co. v. Saxon, issued on June 6, 2022, the high court ruled that ramp supervisors working for Southwest Airlines are “engage[d] in foreign or interstate commerce” and thus are exempt from the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. The FAA is a federal law that, when applicable, can override state law overriding arbitration agreements in certain situations. The FAA often functions in a way that prohibits employees from pursuing class actions. As a result, cases involving arbitration agreements can be hard fought on all sides.

In Southwest Airlines, Latrice Saxon filed suit under the Fair Labor Standards Act alleging that she and a class of similar workers were denied overtime pay. Southwest moved to dismiss the case, citing an arbitration agreement the airline said that the ramp supervisors had with Southwest. The agreement, if applicable, would have barred Saxon from pursuing the class action. Saxon argued that the arbitration agreement did not apply to her lawsuit because she and other ramp supervisors were a “class of workers engaged in foreign or interstate commerce” that are exempt under the FAA. Ultimately, the Supreme Court agreed with Saxon, holding that “any class of workers directly involved in transporting goods across state or international borders falls within Section 1’s exemption.” As a result, Saxon’s claim—and her putative class action—will be permitted to proceed in court.

In Morgan v. Sundance, Inc., decided on May 23, 2022, the Supreme Court held that a party facing a motion to compel arbitration need not demonstrate prejudice when arguing that any agreement to arbitrate their claims has been waived. This arbitration-specific defense has often been employed in cases in which a party attempting to compel arbitration has arguably acted in a manner inconsistent with a desire to arbitrate, for example, by pursuing claims in court. The Supreme Court stated that the FAA requires courts to put arbitration contracts on “equal footing” with other kinds of contracts. As a result, waiver of a contractual right to arbitrate can exist even where the other party has not suffered prejudice due to the other’s party’s delay or conduct.

Bennett and Belfort’s experienced attorneys frequently deal with issues surrounding arbitration and will continue to monitor this developing area.