WAIVING ARBITRATION DOES NOT REQUIRE PREJUDICE TO THE OTHER PARTY, SAYS USSC By Christopher T. Vrountas, Esquire and Allison C. Ayer, Esquire, Vrountas, Ayer & Chandler, P.C.
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n May 23, 2022, in a case called Morgan v. Sundance, the United States Supreme Court unanimously decided that a party can waive its right to arbitration even when its conduct has not prejudiced the other side. In so holding, the USSC changed 1st circuit precedent which had for years required a showing of prejudice. All that is needed to prove waiver is a showing that the party knowingly relinquished the arbitration by acting inconsistently with that right. Here is what happened: Robyn Morgan worked as an hourly employee at a Taco Bell franchise that was owned by Sundance, Inc. As many companies require of new hires, Morgan signed an arbitration agreement when he started with the company. In essence, he agreed to use binding arbitration instead of going to court if he had a dispute with the Company about matters concerning his employment.
Despite the agreement, Morgan brought a nationwide collective action alleging that Sundance violated the overtime rules of the Fair Labor Standards Act (“FLSA”). Morgan alleged that Sundance avoided paying its hourly employees premium overtime pay for hours worked over 40 in a week, in particular by recording hours in a different week than they were actually worked, to prevent any weeks’ total from exceeding 40. Although it could have enforced the arbitration agreement at the outset of suit, Sundance initially defended itself. It filed a motion to dismiss, and then an answer and affirmative defenses when it lost that motion. Notably, none of the affirmative defenses mentioned the arbitration agreement. Sundance also jointly mediated Morgan’s case with another collective action filed by a different plaintiff. It settled that other case, but not Morgan’s.
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