ST. LOUIS – A federal appellate court in Missouri has ruled that a company forfeited its right to arbitration by participating in litigation for months – including an attempt to get the case moved to the U.S. District Court for the Eastern District of California – when company officials knew all along that an employment contract had contained an arbitration clause.

The U.S. 8th Circuit Court of Appeals in Missouri declined to end litigation against North Central Distributing Inc., doing business as Yosemite Home Decor, filed by a former employee, Richard Messina, in 2014 after the company had responded to the employee’s lawsuit over the course of eight months.

The former employee, allegedly terminated a short time after joining the company, had moved the breach of contract and wrongful termination lawsuit from state to federal court and had asked to move the case from Minnesota to California, where the company had relocated. At that point, the company asked the court to terminate the lawsuit because of an arbitration clause in the former employee’s contract.

The court’s ruling on the matter cited Lewallen v. Green Tree Servicing LLC, noting that the company had waived its right to arbitration by knowing about the arbitration clause, acting inconsistently with that clause and prejudicing the other party by those inconsistent acts.

William B. Gould IV, Charles A. Beardsley professor of law emeritus at Stanford University in Palo Alto, said arbitration clauses are becoming more popular with employers.

“It’s becoming quite frequent for major companies to have arbitration clauses with employees and also consumers,” he told Northern California Record. “It’s become a very major problem. Sometimes, an employee doesn’t even know that he or she has entered into such a contract and sometimes a company will say that if you aren’t going to abide by this contract, then we won’t hire you or we’ll dismiss you.”

The professor said that few employees or potential employees have enough bargaining power to win significant concessions in regard to arbitration agreements.

“Unless that person’s skills seems to be unique and unusual, the employee is not going to have very much leverage,” he acknowledged.

Gould noted that in recent years the U.S. Supreme Court has upheld such clauses, limiting an employee’s or potential employee’s courses of action.

“This particular Supreme Court is very much interested in protecting business," he said. "Some articles I have written about the Supreme Court of the United States say that the business of the court is business. These arbitrations are quite favorable to business, and, also, the court has made it almost impossible for employees to bring so-called ‘class actions’ when they use arbitrations.”

Other courts have reined in such agreements, though, he added.

Gould said that limiting the use of class-action lawsuits against an employer can make finding adequate counsel much more difficult for an employee or former employee.

“Where only one person is involved, there just isn’t enough money to make it worthwhile,” he said. 

Gould suggested that a remedy to such a situation would be to require arbitration agreements to allow for class actions, allow arbitration outcomes to include all damages that would be available through litigation, and allow employees or former employees to have a choice in who arbitrates a case.

“Usually, they don’t have the ability to get those kinds of things in an agreement,” he said. 

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