Iowa fast-food worker’s wage lawsuit survives in U.S. Supreme Court

The U.S. Supreme Court on Monday handed a small, but potentially significant, victory to a fast-food worker from Iowa.

The court did not address the basic premise of Robyn Morgan’s lawsuit – that the Taco Bell restaurant she worked for had violated wage-and-hour laws. The court did, however, address a procedural issue that could have major implications for U.S. workers whose employers insist on arbitration to settle disputes that would otherwise be heard in court.

Beginning sometime around 2015, Morgan worked as an hourly employee for a Taco Bell restaurant in Osceola, which was owned by a franchise called Sundance. When applying for the job, Morgan signed an agreement to arbitrate any employment dispute.

In 2018, she filed a nationwide collective action case — a procedure for litigating a multi-plaintiff wage dispute, similar in nature to a class-action lawsuit — against Sundance. She alleged the company violated federal laws regarding overtime by moving some workers’ hours into other pay periods as a way of preventing the employees from being paid for more than 40 hours in any given week.

Sundance initially defended its actions in court, as if no arbitration agreement was in place. But after eight months of litigation, Sundance filed a motion to compel arbitration in the matter.

Morgan’s attorneys opposed the motion, arguing that Sundance had waived its right to arbitrate by litigating for so long. A district court judge agreed and denied Sundance’s motion. The company appealed, and the Eight Circuit Court of Appeals reversed the district court ruling in a split decision.

The appeals court ruled that a party waives its right to arbitration only after three criteria are met: the party knew of the right; then acted inconsistently with that right; and then prejudiced the opposing party through those inconsistent actions.

That third element, requiring the opposing party to be prejudiced or placed at a disadvantage, is not written into the law, but nine circuits had previously found that the Federal Arbitration Act demonstrates a “strong federal policy favoring arbitration” which demands such a showing of prejudice to prove that the right to arbitrate has been waived.

The Eight Circuit Court of Appeals was essentially saying that because Morgan failed to show that her claim was prejudiced, or damaged, by Sundance waiting so long to cite the arbitration agreement as a defense, Sundance had not waived its right to insist upon arbitration.

The U.S. Supreme Court on Monday ruled otherwise. Writing for the majority, Justice Elena Kagan stated there is no such requirement to show prejudice to prove that the right to arbitration has been waived.

Noting that “waivers” are understood to be actions directed toward the “intentional relinquishment or abandonment of a known right,” Kagan pointed out that in other contexts, the courts have seldom considered the harmful effects of those actions on the opposing party.

“In demanding that kind of proof before finding the waiver of an arbitration right, the Eighth Circuit applies a rule found nowhere else,” the opinion stated. “The Federal Arbitration Act’s policy favoring arbitration does not authorize federal courts to invent special, arbitration-preferring procedural rules… The federal policy is about treating arbitration contracts like all others, not about fostering arbitration.”

The effect of the court’s ruling is that the Eighth Circuit Court of Appeals must address, again, the question of whether Sundance knowingly relinquished its right to arbitrate the case.

This time, however, the court will consider only whether Sundance did so by acting inconsistently with that right, rather than whether it had also prejudiced the plaintiff by acting inconsistently.

Morgan’s attorney, Karla Gilbride of the public-interest law firm Public Justice, praised the court for its decision on Monday.

“We are pleased that the Supreme Court announced today in no uncertain terms that the Federal Arbitration Act does not support judge-made procedural rules favoring arbitration over litigation or favoring arbitration agreements over other types of contracts,” the statement said.

“All Robyn Morgan wants in this case is to be paid fairly by her former employer and to have her legal arguments treated fairly by the courts, without a thumb on the scale because those arguments happen to involve arbitration. We are hopeful that today’s decision will bring Ms. Morgan a step closer to a fair result in her dispute with Sundance, and we’re also hopeful that it will send a message to all corporations who include arbitration provisions in their contracts with workers and consumers that those arbitration provisions will be treated just like any other term in their contract — no worse, but also no better.”