On May 23, 2022, the Supreme Court ruled, in a decision that will potentially have wide ranging impact on the arbitration of potential class action disputes, that a party’s right to try to send a case to arbitration after first litigating does not depend on whether the delay prejudiced the other party. As a result, workers seeking to keep their cases out of arbitration no longer need to show prejudice when fighting a delayed arbitration bid. They only need to show that the employer waived its right to arbitration by engaging in conduct inconsistent with the intent to arbitrate.
Plaintiff Robyn Morgan’s case stems from her allegation that her former employer and Taco Bell franchisee, Sundance, Inc., failed to pay her time-and-a-half for overtime. Specifically, Morgan alleges that Sundance recorded her worktime across multiple weeks to keep her time under forty hours per week. Sundance answered Morgan’s Complaint and litigated the case for eight months. It then moved to compel arbitration based on the arbitration clause in Taco Bell’s standard employment contract.
The U.S. District Court for the District of Iowa denied Sundance’s motion, ruling that it waived its right to arbitration by litigating the case. The Eighth Circuit reversed, holding that that while Sundance litigated the case for eight months, Sundance did not waive its right to arbitrate because its litigation was limited to seeking to stay the case—as Sundance argued that Morgan’s suit duplicated an earlier suit by another worker. The court also stated that Morgan did not face unfair prejudice under these circumstances when Sundance sought to enforce the arbitration clause after litigating the case for eight months. The Supreme Court then reversed, unanimously ruling that the lower court incorrectly held that the waiver of a right to arbitrate depended on a showing of prejudice. The Court said that a showing of prejudice is not required because it is not part of a traditional breach of contract analysis. The case will now return to the District Court to determine if, without the prejudice requirement, Sundance waived its right to arbitration.
This ruling is significant for employers facing both individual claims from employees and also potential class action lawsuits where there are grounds in an employment contract to move to compel arbitration. As a rule of thumb, employers should immediately move to compel arbitration based on the terms of the employment contract before litigating the merits of the case in court. If the employer fails to do so, then employees likely have grounds, regardless of prejudice, to argue that the employer waived any right to arbitration.