When Is a Waiver of the Right to Arbitrate a Waiver?

Arbitration continues to be a growing preference for dispute resolution. Mandatory arbitration provisions are found in a variety of commercial contracts, especially in consumer agreements. In fact, it has been reported in a 2018 study that 81 of America’s 100 largest companies use binding arbitration agreements as a standard provision in their consumer contracts. While arbitration is not yet as prevalent in business-to-business agreements, the complexity of these types of agreements encourages using arbitration. In franchising, mandatory arbitration clauses have grown in popularity because, among other reasons, they can serve as a shield against class actions in the form of an arbitral class waiver. As far back as 1997, one prominent franchise attorney concluded, “franchisors with an arbitration clause in their franchise agreements have an effective tool for managing these new class action risks”—in other words, a “class action shield.” Even with the perceived advantages and the growing reliance on arbitration, it is not uncommon for a party mandating arbitration to waive that right by asserting or defending its claim in court, only to compel arbitration at a later time during the litigation. The question is; Can a party with an arbitration right initially waive that right and then later compel arbitration?

Republished with permission. The complete article "When Is a Waiver of the Right to Arbitrate a Waiver?" was published by Texas Bar Journal on October 2, 2023.