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Supreme Court adds Taco Bell arbitration spat to its menu

A former employee spent years locked in litigation with one the fast food chain's franchisees, only to see the case kicked to arbitration. 

WASHINGTON (CN) — In a Monday morning orders list, the Supreme Court agreed to hear arguments about whether an employer missed its chance to demand arbitration when a former Taco Bell worker sued it over unpaid overtime. 

The case stems from Robyn Morgan's brief career at Sundance Inc., which owns 150 Taco Bell restaurants across the United States. During the two or three months she worked at one Iowa location in 2015, Morgan says was subjected to policy in which Sundance moved hours from one week to another to avoid paying employees for all of their hours or any overtime when those hours exceeded 40 hours per week. Morgan sought to represent a class based on alleged violations of the Fair Labor Standards Act, but her suit came two years into a similar legal battle Sundance was defending in Michigan.

Sundance first tried unsuccessfully to have Morgan’s case dismissed as duplicative of the Michigan suit, Woods v. Sundance Inc. When that effort failed, Sundance met in 2019 with Morgan and representatives in the Wood case for joint mediation. Ultimately the Wood plaintiffs agreed to a settlement, but Morgan did not, at which point Sundance moved to compel arbitration in Morgan's suit.

Though the trial court turned it down, finding that the company's participation in litigation up to that point had waived its arbitration rights, the Eighth Circuit reversed last year.

Morgan petitioned the Supreme Court for a writ of certiorari to answer a question has created a circuit split: whether a party is required to prove prejudice to forfeit the right to compel arbitration.

“This Court should grant certiorari to resolve a longstanding circuit split on the question whether a party asserting waiver of the right to arbitrate through inconsistent litigation conduct must prove prejudice, and if so, how much,” her attorney, Karla Ann Gilbride with Public Justice, wrote. “This question not only divides the federal courts of appeals, but divides federal courts from geographically co-located state courts of last resort, so that someone asserting litigation-conduct waiver in Maryland or West Virginia would have to prove prejudice if their case were in federal court and governed by Fourth Circuit precedent but not if it were proceeding in state court.” 

Sundance meanwhile calls it a stretch to say there is a circuit split. 

“The so-called division or conflicts among the courts below is illusory as it is apparent that all courts consider prejudice to be at least a relevant factor in the waiver analysis — even those courts that do not treat it as a mandatory component,” the chain claims. 

Represented by Reyburn Williams Lominack III with Fisher & Phillips in Columbia, S.C., Sundance did not return a request for comment. 

The chain says Morgan signed an agreement when she began employment with the company that required arbitration of the wage and hour claims presented in her case. It also calls Morgan’s case a “near verbatim copy” of the Woods case and says the questions presented by her petition are “irrelevant and academic.” 

Per their custom, the justices did not issue any comment Monday in agreeing to take up the case.

Leah Nicholls, an another attorney for Morgan with Public Justice, said they were glad the Supreme Court decided to hear the case.

“Notably in its opposition to cert, Sundance didn't defend the rule requiring prejudice at all, it merely argued — despite the clear circuit split — it wasn't a cert-worthy question,” Nicholls said in a phone call. “It did not actually attempt to defend the underlying rule. So we are excited to have it in front of the court, and we look forward to the court hopefully resolving the split in favor of the waiver standard being the same in the arbitration context in other context.”

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