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The Employer Handbook Blog
You Snooze, You Lose (Your Arbitration Clause)
“Heads I win, tails you lose.”
That’s how the Sixth Circuit described one hospital’s strategy after it tried to switch to arbitration only after losing some key early motions in court. The judges didn’t flip for it.
TL;DR: A Michigan hospital tried to move a religious-discrimination case to arbitration only after it had spent more than a year fighting the case in court. The Sixth Circuit said that was too late. Because the hospital twice sought a complete judicial win before invoking arbitration, it was “in default in proceeding with such arbitration” under § 3 of the Federal Arbitration Act.
The setup: litigation first, arbitration later
A physician assistant at a Michigan hospital sued after being fired for refusing to use preferred pronouns and to refer patients for gender-affirming procedures. She alleged religious-discrimination and failure-to-accommodate claims under Title VII and brought related § 1983 claims.
The hospital litigated in federal court for over a year. It filed two motions to dismiss that sought dismissal with prejudice, opposed the plaintiff’s effort to amend, and obtained a discovery stay. Only after the district court let several claims proceed did the hospital invoke an arbitration clause in her employment agreement. The district court compelled arbitration and dismissed the case.
The Sixth Circuit: You cannot have it both ways
The Sixth Circuit reversed the lower court and held that the hospital had lost its right to arbitrate. The panel explained that the Federal Arbitration Act allows arbitration only when the party seeking it is not “in default in proceeding with such arbitration.” The hospital was in default because it had twice sought “an immediate and total victory” in court through motions to dismiss all claims with prejudice.
That choice crossed the line. By asking the district court to decide the merits instead of the arbitrator, the hospital’s conduct was “completely inconsistent with any reliance on an arbitration agreement.” The court cited a long line of decisions reaching the same result when a defendant first pursued a full judicial win and later tried to compel arbitration after losing those motions. In the court’s words, parties cannot “play heads I win, tails you lose” by keeping arbitration in reserve as a fallback once litigation efforts fail.
In short, the line is crossed when a party seeks a decision on the merits from the court before invoking its contractual right to arbitrate. At that point, the right is extinguished.
What this means for employers, HR, and the lawyers
✅ Preserve arbitration rights early.
If you intend to rely on an arbitration clause, it may be best to raise it in your first responsive pleading. Waiting until after Rule 12 practice or early discovery can forfeit the right entirely.
✅ Tighten intake and handoff.
Create a litigation-intake checklist that flags whether an employee signed an arbitration agreement. Make sure HR and outside counsel align on this from day one.
✅ Avoid “test the waters” tactics.
Seeking dismissal with prejudice and then pivoting to arbitration invites a default finding under the FAA.
✅ Centralize agreements.
Maintain signed arbitration agreements in a searchable system. A missing or overlooked agreement can equal lost leverage.
Bottom line
Arbitration clauses are only as strong as your willingness to use them promptly. Once you pick the courtroom, you may not get a do-over.