The U.S. Supreme Court on Monday awarded a small but potentially significant victory to an Iowa fast food worker.
The court did not address the basic premise of Robin Morgan’s lawsuit – that the Taco Bell restaurant where she worked violated wage and hour laws. However, the court did address a procedural issue that could have serious implications for US workers whose employers are pushing for arbitration to resolve disputes that would otherwise go to court.
Starting around 2015, Morgan worked as an hourly employee at the Taco Bell restaurant in Osceola, which was owned by the Sundance franchise. When hiring, Morgan signed an agreement to arbitrate any labor dispute.
In 2018, it filed a nationwide class action lawsuit, a multi-plaintiff wage dispute litigation process similar in nature to a class action lawsuit, against Sundance. She alleged that the company violated federal overtime laws by shifting some work hours to other pay periods to prevent employees from being paid more than 40 hours in any given week.
Sundance initially defended its actions in court as if there was no arbitration agreement. But after eight months of litigation, Sundance filed a motion to seek arbitration on the matter.
Morgan’s attorneys opposed the motion, arguing that Sundance had waived its right to arbitration after litigating for so long. The district court judge agreed and denied Sundance’s motion. The company filed an appeal, and the Eighth U.S. Circuit Court of Appeals overturned the district court’s decision in a split decision.
The Court of Appeal held that a party waives its right to arbitration only after three criteria are met: the party was aware of its right; then acted inconsistently with this right; and then by these inconsistent actions they harmed the opposite side.
This third element, requiring the opposing party to be prejudiced or disadvantaged, is not written into law, but nine districts have previously found that the Federal Arbitration Act demonstrates “strong pro-arbitration federal policy” that requires such a demonstration of prejudice. to prove that the right to arbitration has been waived.
The Eighth Circuit Court of Appeals essentially stated that because Morgan was unable to show that her claim was prejudiced or damaged because Sundance waited so long to invoke the arbitration agreement as a defense, Sundance has not waived its right to seek arbitration.
The U.S. Supreme Court on Monday ruled otherwise. In a letter on behalf of the majority, Judge Elena Kagan said there was no such requirement to demonstrate bias in order to prove that the right to arbitration had been waived.
Noting that “waivers” are understood to mean actions aimed at “deliberately waiving or waiving a known right”, Kagan pointed out that in other contexts courts have rarely considered the harmful effects of these actions on the adverse party.
“By requiring this kind of proof before finding a waiver of arbitration law, the Eighth Circuit is applying a rule found nowhere else,” it said in the opinion. “The pro-arbitration policy of the Federal Arbitration Act does not authorize federal courts to invent special procedural rules favoring arbitration… Federal policy concerns the treatment of arbitration contracts like all others, not the encouragement of arbitration.”
The implication of the court’s decision is that the Eighth Circuit Court of Appeals must again consider whether Sundance knowingly waived its right to arbitrate.
However, this time the court will only consider whether Sundance did so by acting inconsistently with that right, and not whether it also harmed the plaintiff by acting inconsistently.
Morgan’s lawyer, Carla Gilbride, of the public interest law firm Public Justice, praised the court for its decision on Monday.
“We are pleased that the Supreme Court today unequivocally announced that the Federal Arbitration Act does not support judge-mandated procedural rules that favor arbitration over litigation or arbitration agreements over other types of contracts,” the statement said.
“All Robin Morgan wants in this case is fair compensation from her former employer and fair treatment of her legal arguments by the courts, without a thumb on the scales, because these arguments involve arbitration. We hope today’s ruling brings Ms. Morgan one step closer to a fair outcome in her dispute with Sundance, and we also hope it sends a signal to all corporations that include arbitration clauses in their contracts with employees and consumers. that these arbitration clauses would be treated just like any other term in their contract—no worse, but no better.”