Hunton Employment & Labor Perspectives

On November 15, 2021, the U.S. Supreme Court agreed to hear Robyn Morgan v. Sundance, Inc. (No. 21-326), a lawsuit from a fast-food worker who asserts that her employer waived its right to compel arbitration by engaging in litigation conduct inconsistent with its purported contractual right to arbitration.  By granting review, the Court is poised to resolve a circuit split as to whether a party must prove prejudice when arguing that the other party waived its right to arbitration by acting in a manner inconsistent with the arbitration agreement.

Case Background

The case was originally brought in 2018 by Robyn Morgan against Sundance, a fast-food franchise owner-operator, in the U.S. District Court for the Southern District of Iowa.  Morgan alleged that Sundance failed to pay her and other similarly situated employees for overtime in violation of the Fair Labor Standards Act.  Eight months after the lawsuit was filed, Sundance filed a motion to compel Morgan to arbitrate her claims.

The district court denied the motion, concluding that Sundance’s participation in the litigation for eight months waived its right to arbitration.  The district court found that Sundance substantially invoked the “litigation machinery,” and therefore waived its arbitration rights, by waiting eight months to assert its right to arbitrate the dispute and failing to mention the arbitration clause in its answer or motion to dismiss.  Sundance appealed.

In March 2021, the U.S. Court of Appeals for the Eighth Circuit reversed the district court’s ruling.  In its decision, the Eighth Circuit concluded that the district court erred in determining that Sundance waived its right to arbitrate because Sundance’s conduct, even if inconsistent with its right to arbitration, did not prejudice Morgan in any meaningful way.

Circuit Split

Nine federal courts of appeals require a finding of at least some prejudice to establish waiver of the right to arbitrate through litigation conduct.  The remaining three circuits (the Seventh, Tenth, and D.C. Circuits) have held that prejudice is not an essential element of proving waiver of the right to arbitrate.

Most states also require a showing of prejudice as part of their test for establishing litigation-conduct waiver of the right to arbitrate.  But at least four state supreme courts (Alaska, Florida, Maryland, West Virginia) share the minority federal view that prejudice should not be required.

Question Presented On Appeal

In its seminal decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the Supreme Court reaffirmed its view that courts must “place arbitration agreements on an equal footing with other contracts.”  The question that the Supreme Court will wrestle with in this appeal is whether the Eighth Circuit’s holding that prejudice is a required element of proving waiver of the right to arbitrate is consistent with the Supreme Court’s “equal footing” requirement.