An employer that litigates first and moves to compel arbitration later can lose the right to arbitrate, and the employee no longer has to prove harm from the delay. In Quach v. California Commerce Club (2024), the Supreme Court of California abandoned the rule that waiver required prejudice to the employee, following the U.S. Supreme Court’s lead. Now the question is whether the employer’s conduct was inconsistent with the right to arbitrate. Answering a complaint, serving discovery, and setting a jury trial can be enough.
What was the old rule?
Prejudice was the employer’s safety net. Under St. Agnes Medical Center v. PacifiCare of California (2003) and the cases that followed it, a party seeking to avoid arbitration had to show that the other side’s delay or litigation conduct had prejudiced it. Courts often found no prejudice when the employer had served discovery and appeared in court, so long as the employee hadn’t lost something concrete.
That rule came from federal cases, which had long described a strong federal policy favoring arbitration and read that policy to require a showing of harm before a court would find the right was lost. When the U.S. Supreme Court in Morgan v. Sundance, Inc. (2022) rejected an arbitration-specific prejudice requirement under the FAA, the California rule lost its foundation.
What did Quach decide?
That California follows the same approach. In Quach v. California Commerce Club, Inc. (2024), the Supreme Court explained: “Because our state-law arbitration-specific prejudice requirement is based upon the federal precedent that Morgan overruled, we now abrogate it.”
The court tied that result to equal treatment: “California policy, like federal policy, puts arbitration agreements on equal footing with other types of contracts.” It held that “in cases governed by the CAA’s procedural rules, as in those governed by the FAA’s procedural rules, California courts may not apply an arbitration-specific prejudice requirement.”
The court also cleaned house. In a footnote, it stated that “To the extent they are inconsistent with our analysis, we overrule St. Agnes Medical Center v. PacifiCare of California,” along with opinions relying on that case.
What conduct cost the employer its right in Quach?
A year of ordinary litigation. The employee sued for wrongful termination, age discrimination, retaliation, and harassment. The employer knew about his signed arbitration agreement before the suit was filed. According to the opinion, “Rather than filing a motion to compel arbitration, Commerce Club answered Quach’s complaint and initiated discovery, propounding form interrogatories, special interrogatories, requests for admission, and a request for production of documents.”
The employer did list arbitration as an affirmative defense in its answer. But the court noted that its counsel “did not raise the issue of arbitration with Quach’s counsel or with the court in any other way.” On its case management statement, the employer requested a jury trial and, as the opinion recounts, listed only a “dispositive motion” among its planned motions. Both sides posted jury fees, and the employer kept litigating.
The lesson for employers is that pleading arbitration as a defense isn’t the same as asserting it. A defense buried in a long list of boilerplate defenses tells the court very little about what the employer intends to do. What a court will weigh is the full course of conduct: what the employer asked for, what it told the court, and how long it waited.
| Conduct | Risk after Quach | Safer practice |
|---|---|---|
| Answering the complaint without moving to compel | Moderate, and grows with time | Move to compel with or soon after the first response |
| Serving merits discovery | High | Limit early discovery to what the arbitration motion needs |
| Requesting a jury trial on the case management statement | High | State the intent to compel arbitration on every court form |
| Listing arbitration only as an affirmative defense | Not enough by itself | Raise it with opposing counsel and the court in writing |
Does Quach mean any delay waives arbitration?
No. The court removed the prejudice requirement. Waiver still requires conduct inconsistent with the right to arbitrate. Courts apply the same principles they use to decide whether any contract right was waived. A short delay while the employer locates the signed agreement, or a brief extension of time to respond, usually won’t do it, above all if the employer tells the plaintiff and the court that a motion to compel is coming.
The risk rises quickly once the employer uses the court for its own benefit. Serving broad discovery on the merits, filing a demurrer or summary judgment motion, or asking for a trial date all signal that the employer has chosen the court. Every month that passes adds to the record.
The plaintiff’s side has adjusted. After Quach, employee counsel often serve discovery early and watch how the employer responds, because an employer that answers merits discovery without objecting on arbitration grounds is building the plaintiff’s waiver argument. Responses to early discovery should state the employer’s position on arbitration and reserve the right to compel. Case management statements, stipulations to continue trial, and even meet-and-confer letters should be checked for anything that reads as a choice to litigate in court.
How should employers respond when a covered employee sues?
Fast, and in writing. The first step is to find the signed agreement and the proof that the employee accepted it, because the motion to compel has to establish the agreement exists. The second is to tell plaintiff’s counsel, in a letter or email, that the employer intends to compel arbitration, and to ask whether the plaintiff will stipulate. The third is to file the motion promptly if the plaintiff won’t agree.
Fee payment is the other trap. Once a case is in arbitration, California statutes, including Code of Civil Procedure section 1281.98, require the employer to pay certain arbitration fees on time, and a late payment can create its own waiver argument. The firm’s post on motions to compel arbitration in California employment cases covers the motion and the fee rules.
First moves when a lawsuit names an employee who signed an agreement
- Preserve the signed arbitration agreement, the electronic signature records, onboarding files, and every version of the policy in effect during the employee’s tenure, along with the emails and texts transmitting them.
- Calendar the response date on the summons, and treat it as the deadline for deciding whether to compel arbitration. Notify the EPLI carrier and confirm the policy’s counsel-selection terms.
- Identify the HR witnesses who can authenticate the agreement, and avoid any action against the employee that could look like retaliation.
- Pull the agreement’s terms on scope, delegation, and fees, and check whether any claim falls outside it, like representative PAGA claims.
- Have counsel send a written notice of intent to arbitrate and file the motion before serving discovery or setting a trial date.
The first weeks of a case often decide whether it’s tried in court or in arbitration. The firm’s page on defending employment lawsuits in California describes how those early choices are made.
Arbitration waiver questions
Can we serve any discovery before moving to compel arbitration?
Limited discovery aimed at the arbitration question, like confirming the employee’s signature or employment dates, is less risky than discovery on the merits. Even then, the safer course is to state in writing that the discovery is limited to the arbitration issue and that the employer intends to move to compel. Broad interrogatories and document requests about the claims themselves are the kind of conduct Quach treated as inconsistent with arbitration.
Does filing an answer waive arbitration?
Not by itself, in most cases. An answer is often required to avoid default. The answer should assert the right to arbitrate, and the employer should follow it quickly with a motion to compel or a written demand for a stipulation. In Quach, the answer listed arbitration as a defense, but the employer then spent more than a year litigating in court, which is what led to waiver.
What if we didn’t know about the arbitration agreement at first?
That can matter. Waiver looks at whether the conduct was inconsistent with a known right. An employer that honestly couldn’t locate a signed agreement, and moved promptly once it did, has a better argument than one that knew about the agreement all along. Employers should document when and how the agreement was found, because the timeline will be scrutinized.
Does Quach apply to agreements governed by the FAA?
Yes. The court held that California courts may not apply an arbitration-specific prejudice requirement whether the case is governed by the California Arbitration Act’s procedures or the FAA’s. Either way, the waiver question is answered under general contract waiver principles, without a separate prejudice showing.
If an employee sued despite an arbitration agreement
If your company has been sued by an employee who signed an arbitration agreement, the first response decides whether the right to arbitrate survives. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving arbitration agreements and waiver. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The cases are Morgan v. Sundance, Inc. (2022) 596 U.S. 411 and Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.