Supreme Court Agrees to Hear Arbitration Case

Author: David B. Weisenfeld, XpertHR Legal Editor

November 17, 2021

Does an employer's delay invoking an arbitration clause mean that it must face a class action lawsuit in federal court?

The Supreme Court is expected to answer that question after it agreed this week to resolve an arbitration dispute involving a Taco Bell employee who claims the fast-food chain wrongly denied hundreds of its employees overtime.

An employee at a Taco Bell franchisee in Iowa, Robyn Morgan, accused her employer of violating the Fair Labor Standards Act by shifting hours to future workweeks to avoid paying out overtime. Morgan had signed an arbitration clause in the company's standard contract as a condition of employment.

However, the franchisee litigated the case for eight months before seeking to invoke the arbitration clause. A federal district court ruled in Morgan's favor and said her lawsuit could go forward, in essence telling the employer, "you snooze, you lose." But the 8th Circuit Court of Appeals reversed that ruling. The appellate court reasoned that even if the employer should have invoked arbitration earlier, the employee did not suffer any harm due to the delay.

The Supreme Court has generally upheld the enforceability of mandatory arbitration clauses in employment, but this case presents a different issue involving whether an employee must show that an employer's delay caused harm or prejudice to their claims. Morgan is seeking to represent more than 500 Taco Bell employees in her case, so the outcome could have big implications for employers and their ability to keep potential class actions out of the courtroom and decided in arbitration instead.

The Supreme Court will hear arguments in Morgan v. Sundance, Inc. in the coming months with a decision expected before the end of its term in June.