A group of more than 500 Taco Bell employees brought their case for wage theft before the justices of the Supreme Court on Monday, arguing that they should not be forced to arbitrate their massive dispute. Several justices grilled the employee-petitioners’ attorney about that position.
The case is Morgan v. Sundance, Inc., a lawsuit involving hundreds of Taco Bell employees who say they’ve been illegally cheated out of overtime pay by Sundance, Inc., a company that owns over 150 Taco Bell franchises. Lead plaintiff Robyn Morgan was an hourly employee at a Sundance-owned Taco Bell in Iowa. Morgan says Sundance forced workers to clock out before the end of their shifts, failed to pay employees’ overtime, and engaged in wide scale wage theft. Morgan and over 500 others brought a lawsuit in 2018 for violation of the Fair Labor Standards Act (FLSA) on behalf of all hourly employees of the company.
The issue before the justices is whether the case should be heard by a judge (as the workers argue) or by an arbitrator (as Sundance contends). After the class action lawsuit was filed, the parties attempted to settle the case using mediation. When the settlement was unsuccessful, however, Sundance filed a motion to compel arbitration. Despite the fact that the workers had signed an arbitration agreement with their employer, Sundance had never given any indication before that point that it intended to arbitrate the dispute.
The district court sided with the plaintiffs, ruling that Sundance had waived any right to arbitration by not asking for it earlier in the proceedings. The U.S. Court of Appeals for the Eighth Circuit, however, reversed, saying arbitration would not prejudice the plaintiffs. The plaintiffs argue that the Eighth Circuit was wrong to require prejudice, saying that it is unfair to allow a party to litigate in court only to suddenly switch gears when that party believes arbitration would produce a better result.
The justices may decide not only whether these particular plaintiffs must arbitrate as a factual matter, but also the far broader question of whether the dispute is governed by the Federal Arbitration Act (FAA) or by state contract law.
During oral arguments, the justices (minus Justice Clarence Thomas, who was admitted to the hospital recently with flu-like symptoms), were all active in questioning attorney Karla Gilbride for Robyn Morgan and former U.S. Solicitor General Paul Clement for Sundance.
Several of the justices appeared skeptical of Gilbride’s arguments, characterizing her position as one that would contradict both the contracts between the parties as well as the typical way arbitration disputes are approached by federal courts.
Justice Amy Coney Barrett pressed Gilbride on a provision in the arbitration agreements indicating that “no judicial proceeding” on the topic of arbitration “shall be deemed a waiver of the party’s right to arbitrate.”
“Why doesn’t that do more work if the right place to look here is substantive contract law?” Barrett asked.
“Non-waiver provisions are routinely waived by subsequent conduct,” argued Gilbride.
“But what’s the point of them then? What’s the point of including them then?” responded Barrett.
Justice Samuel Alito expressed some skepticism as what law is controlling in the case, asking Gilbride: “All the courts of appeal, as I understand it, have applied federal common law here. Is that right?”
“And you now want the case to be remanded and decided under Iowa law, am I right?” Alito continued.
When Gilbride explained her position, Alito commented, “You have a cogent argument, but it would represent a significant change.”
Justice Sonia Sotomayor also picked up on the line of questioning, asking Gilbride, “How do we get from federal law to state law?” Later, Sotomayor commented on the concerns raised by her fellow justices.
“Some of my colleagues seem troubled by the fact that states differ in how they define waiver,” she said. “I’m troubled by the fact that the circuits define prejudice in different ways.” She pointed out, “So there’s variation no matter what we do.”
Chief Justice John Roberts posed additional difficult questions to Gilbride.
“The whole point of the FAA—or at least a significant point—was to expedite disputes,” Roberts said. “It seems to me you’re creating a whole new battleground before you even get to arbitration about whether there’s been waiver under state law.” Roberts commented that such a source of delay seems “quite contrary” to the overall intent of the FAA.
When attorney Paul Clement argued on behalf of Sundance, though, he faced a tough inquiry from Justice Elena Kagan. The justice characterized the underlying dispute as one about whether the arbitration agreement “is valid and enforceable.”
“That’s a question that the FAA delegates to state law,” said Kagan, who went on to comment that she did not see a meaningful difference between the procedure that should be used to decide contractual defaults relating to arbitration clauses versus other provisions of a contract.
Gilbride said in emailed statement to Law&Crime that “Corporations shouldn’t be able to start litigating in court, ask the judge to dismiss the case or transfer it to another court like Sundance did here, and then switch tactics months later and argue the case shouldn’t be in court at all and should go to arbitration instead.”
“Those sorts of actions would be enough to meet the generally-applicable test for contractual waiver under the law of most states,” Gilbride said. “The Eighth Circuit was wrong to add an extra step to this waiver test just because the contract involved arbitration, and we’re hopeful that the Supreme Court will issue an opinion rejecting that arbitration-specific approach and reiterating that arbitration agreements must be treated just like any other contract.”
Law&Crime did not receive an immediate response to request for comment from counsel for Sundance.
[image via Erin Schaff/POOL/AFP via Getty Images]
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