Morgan v. Sundance, Inc.
Headline: Labor and arbitration fight: Court rejected an arbitration-only prejudice requirement, barring courts from inventing special rules and requiring ordinary waiver standards when deciding lost arbitration rights for employees or employers.
Holding: The Court held that federal courts may not create an arbitration-specific waiver rule requiring proof of prejudice, and that ordinary federal waiver rules apply when deciding if arbitration rights were lost.
- Stops courts from requiring proof of prejudice to find arbitration rights waived.
- Courts must apply ordinary waiver rules when parties delay seeking arbitration.
- May allow plaintiffs to keep suits if employers litigate for many months before invoking arbitration.
Summary
Background
Robyn Morgan was an hourly Taco Bell employee who signed a job agreement to use binding arbitration instead of court. She sued her employer, Sundance, in federal court with a nationwide complaint about unpaid overtime under the Fair Labor Standards Act. Sundance first litigated the case—moving to dismiss, answering the complaint, and trying mediation—then nearly eight months later asked the court to stay the case and force arbitration.
Reasoning
The Court considered whether federal courts may create an arbitration-specific rule that a party seeking arbitration must show the opposing side was prejudiced by delay. The Court held they may not. The FAA requires courts to treat arbitration agreements like other contracts and to decide motions “in the manner provided by law.” So judges cannot invent special rules that favor arbitration; ordinary federal waiver principles, not a unique prejudice requirement, must govern whether a party lost its right to arbitrate.
Real world impact
The decision affects disputes over arbitration across federal courts. Judges can no longer demand proof of prejudice before finding an arbitration right waived; instead, they must apply normal waiver or related doctrines to the parties’ conduct. The Supreme Court vacated the Eighth Circuit’s decision and sent the case back so that court can decide, under the correct standards, whether Sundance knowingly gave up its arbitration right. The ruling is procedural, not a final resolution on the merits of the overtime claims.
Dissents or concurrances
The Supreme Court opinion was unanimous. A dissent at the Court of Appeals had argued the employer’s long litigation harmed the employee and that prejudice should not be required.
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