On November 15, 2021, the U.S. Supreme Court announced it would hear a case by a former Taco Bell employee, Robyn Morgan, regarding her former employer’s right to compel arbitration in her wage and hour case.  Morgan’s claims stem 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.

In June 2019, the United States District Court for the District of Iowa denied Sundance’s motion.  However, in March 2021, a divided panel in the United States Court of Appeals for the Eighth Circuit reversed the lower court’s decision.  The Court held that while Sundance indeed 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.

It is well-settled law that an arbitration clause is on equal footing with other contracts.  An agreement in a contract to resolve a dispute through arbitration is valid and enforceable unless there are grounds to revoke the agreement.  In other words, a party to an arbitration agreement may waive its right to arbitrate if it engages in conduct inconsistent with the arbitration agreement—such as by going to court to litigate the case on the merits.  In this case, Morgan argues that Sundance engaged waived its right to arbitrate by litigating the case for eight months.  Morgan also argues that the Court holding that Sundance could compel arbitration after eight months because Morgan faced “no prejudice” by allowing Sundance to enforce the arbitration agreement now is an additional step that does not exist in other contract claims—and is inconsistent with the law that arbitration clauses are on equal footing with other contracts.

The Supreme Court’s ruling, in this case, could have a significant impact on both how arbitration clauses in contracts are enforced, but also the extent to which an employer may “litigate” a case in court before moving to compel arbitration.  If the Court rules for Sundance, this may allow employers greater freedom to compel arbitration later in the game in a variety of different disputes, including potentially large class action cases.  However, if Morgan prevails, it may become increasingly difficult for employers to compel arbitration after engaging in just some litigation—such as by answering the complaint or moving to dismiss—when they could have moved to compel arbitration at the outset.

This case is particularly interesting as we recently moved to compel arbitration and enforce an arbitration clause in Maryland state court.  In that case, we immediately moved to compel arbitration before ultimately reaching a provisional settlement.  When the provisional settlement fell apart and we re-asserted our motion to compel arbitration.  However, the plaintiffs argued that we waived arbitration by engaging in months of settlement discussions and then, after reaching a provisional settlement, by filing a motion for the court to approve the class action settlement.  The plaintiffs argued that we waived the right to arbitration by engaging in settlement discussions and then by using the “litigation machinery” to seek court approval of the settlement.  In response, we argued that we did not waive arbitration by merely filing a motion required by rule.  The court ultimately agreed with our position.  However, the Supreme Court’s eventual decision could significantly impact how similar cases are litigated moving forward.  Therefore, we will continue to monitor this case and provide an update when there is a decision.