SCOTUS to hear Taco Bell employee's arbitration case

Dive Brief:

The U.S. Supreme Court has granted certiorari to a petition filed by an employee of an Iowa Taco Bell franchise after the employee challenged the employer's attempt to compel her to arbitrate her claims under the Fair Labor Standards Act (Morgan v. Sundance, Inc., No. 21-328 (U.S. Nov. 15, 2021)).
In 2018, the employee sued the franchising company, Sundance, Inc., alleging that Sundance shifted the hours employees worked in one week over to the following week while also capping employees' paychecks at 80 hours per two-week period. The company filed a motion to dismiss or alternatively stay the suit, but a district court denied the motion.
Afterwards, the employee participated in a settlement mediation involving a similar suit by Sundance employees in Michigan, but the mediation was unsuccessful in resolving the employee's action, per the district court. Sundance then moved to compel arbitration, which the court denied. On appeal, the 8th Circuit U.S. Court of Appeals reversed in a 2-1 decision.

Dive Insight:

A key point of contention concerns whether, as the employee claimed, Sundance waived its right to arbitration.

The district court wrote that employee "contends that it is particularly relevant that Sundance waited eight months to assert a right to compel arbitration, while engaging in other litigation-related activities." The employee also alleged that she was prejudiced by the company's failure to make a timely motion to compel arbitration, and that she was prejudiced because of the work and expense of preparing her legal action.

The district court applied a three-part test, known as the Lewallen waiver test, to determine whether Sundance had waived its right to arbitration. Per the test's criteria, as articulated by the 8th Circuit, a party waives its right to arbitration if it:

Knew of an existing right to arbitration.
Acted inconsistently with that right.
Prejudiced the other party by these inconsistent acts.

The district court held that the employee had proven these three points, but the 8th Circuit disagreed that the employee was prejudiced by having to respond to Sundance's motion to dismiss.

One member of the three-judge panel dissented, stating that Sundance's conduct "amounts to a waiver of its contractual right to arbitration" and concluding that the "impositions on the plaintiff are enough to satisfy the modest prejudice requirement employed in this circuit."

Sundance will mark the most recent in a series of arbitration series for the High Court. In 2019, the court held in Lamps Plus, Inc. v. Varela, a 5-4 decision, that courts may not authorize class-wide arbitration on the basis of an ambiguous agreement between parties to a lawsuit. One year prior, the court delivered its ruling in Epic Systems Corp. v. Lewis, in which it upheld an employer's right to require that workers waive their right to class or collective actions and instead require workers to arbitrate disputes individually.