The U.S. Supreme Court sided unanimously Monday with a former Iowa worker who sued her employer, a Taco Bell franchisee, for wage theft.
Robyn Morgan's 2018 lawsuit against Michigan-based Sundance Inc. has been tied up for years over the question of whether the company waited too long to invoke a contract clause mandating private arbitration of the claim. The decision by the nation's highest court holds that lower courts wrongly ruled in Sundance's favor and clarifies how courts nationwide should interpret and enforce similar arbitration clauses.
Morgan, who now lives in Missouri, accused Sundance of telling her and other employees at the Osceola Taco Bell to work off the clock and cheating them out of overtime. Her class-action lawsuit alleges that these actions were widespread company policies and seeks repayment for her and workers at Sundance's approximately 150 other franchise locations around the country. According to its website, the company has 16 in Iowa.
Monday's decision overturns a previous Eighth Circuit Court of Appeals decision allowing the company to force her into arbitration. The appellate court now will have to reconsider with the new guidance what the ultimate venue for Morgan's complaint should be.
Appellate courts had split on arbitration rules
Like many employers, Sundance requires employees to sign papers agreeing to use private arbitration to resolve disputes.
The use of such binding arbitration agreements is controversial. Proponents argue that arbitration is much faster and cheaper for all parties than litigation. Labor activists believe the system — in which arbitrators are hired by the companies — favor employers and helps shield misconduct from public scrutiny.
When Morgan filed her lawsuit, however, the company first engaged in eight months of litigation — filing and arguing a motion to dismiss, filing an answer to the suit and engaging in mediation — before filing a motion to compel arbitration.
Lawyers for Morgan argued that Sundance had waived its right to arbitrate by delaying. The district court ruled in her favor, but the court of appeals reversed the ruling, saying that because Morgan's case had not been "prejudiced," or harmed, by the delay, the arbitration agreement could be enforced.
That prejudice requirement was key to Monday's ruling. Nine appellate circuits had ruled a showing of harm was required to waive arbitration agreements, and two circuits ruled it wasn't.
In appealing the Eight Circuit's decision, Morgan's lawyers pointed out that in evaluating whether a party has waived a right, courts usually focus on that party's actions, not on how other parties were affected. Arbitration clauses, she argued, should be treated the same.
A group of 19 states, including Iowa, filed a brief supporting Morgan's appeal. Professional organizations for both trial lawyers and arbitrators also supported her position.
Supreme Court rejects 'novel rules' for arbitration
Morgan maintained before lower courts that a delay of eight months, and associated legal bills, constituted prejudice. The Supreme Court's decision instead holds that courts should not consider prejudice at all.
Justice Elena Kagan, who wrote Monday's decision, said the Federal Arbitration Act's "policy favoring arbitration" does not grant courts the authority to invent special rules in arbitration's favor.
"A court must hold a party to its arbitration contract just as the court would to any other kind," she wrote. "But a court may not devise novel rules to favor arbitration over litigation."
— IA Attorney General (@AGIowa) May 23, 2022
Kagan makes clear federal law does not privilege arbitration over litigation, or vice versa.
"If an ordinary procedural rule — whether of waiver or forfeiture or what-have-you — would counsel against enforcement of an arbitration contract, then so be it," she wrote. "The federal policy is about treating arbitration contracts like all others, not about fostering arbitration."
On remand, the appeals court may consider in that context whether Sundance waived its right to arbitrate, as well as whether waiver is the correct legal framework to evaluate whether an arbitration clause can be enforced.
Reactions: 'not a big surprise,' 'win for workers'
University of Iowa law professor Derek Muller, who studies the Supreme Court, said its decision in the Morgan case was "not a big surprise" for court-watchers.
"Sometimes arbitration cases have been a bit more divisive among the justices at different points at time, but this case just presented the opportunity for the court to clean up a misunderstanding that began in the lower courts about 50 years ago," Muller said. "The court has repeatedly talked about the Federal Arbitration Act having this strong policy in favor of arbitration. The (lower) courts took that and ran a little bit too far with it."
The decision was unanimous in part because the justices chose not to engage on some of the broader questions about how arbitration can and should work, Muller said.
"The way the court addressed this, and I think Justice Kagan’s opinion pretty cleanly identified this, this is a pretty narrow issue they chose to focus on," he said. "Framed in that light, the unanimous vote is not surprising."
Iowa Attorney General Tom Miller on Twitter described Monday's decision as "a win for workers."
Attorney Karla Gilbride, who represented Morgan, said in a statement the court found "in no uncertain terms" that courts should not grant special protections for arbitration agreements.
"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," Gilbride said.
"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.”
Attorneys for Sundance did not immediately return a request for comment.
This article originally appeared on Des Moines Register: Supreme Court rules for Iowa Taco Bell worker in arbitration case