Supreme Court to Consider Enforceability of Arbitration Agreements Mid-Litigation, While Senate Democrats Try Yet Again to Chip Away at Forced Arbitration in Employment Disputes

Last month, the U.S. Supreme Court agreed to review a decision that could cut into the enforceability of arbitration agreements in the employment context.  The decision under review was issued by the Eighth Circuit Court of Appeals, which reversed a holding from an Iowa federal court refusing to enforce an arbitration agreement between Taco Bell franchisee and an hourly employee with respect to a dispute under the Fair Labor Standards Act.  Specifically, the Iowa court held that the Taco Bell franchise waived its right to compel arbitration because it defended against the employee’s wage-and-hour claims in court for several months before invoking agreement.

A divided Eighth Circuit panel overturned the lower court’s decision, reasoning that franchisee’s belated attempt at enforcement did not hinder the employee’s ability to pursue her claims or otherwise result in any prejudice.  As the majority elaborated, the eight months that passed between the employee’s initiation of the lawsuit and the franchisee’s motion to compel arbitration were spent arguing over whether the lower court could hear the case, as opposed to litigating the merits.  The dissenting judge pointed out, however, that the franchisee did not mention arbitration even once over this time, and did not raise the arbitrability of the dispute as an affirmative defense in its Answer—circumstances that would typically result in waiver under existing (albeit unsettled) law, particularly if arbitration agreements are to be analyzed on equal footing with all other contracts (as the U.S. Supreme Court has previously held they should be).

Ultimately, the U.S. Supreme Court’s decision will come down to a single dispositive question: Is prejudice to the plaintiff relevant to assessing whether the right to enforce an arbitration agreement has been waived?  

While perhaps a niche dispute, it is nevertheless as a significant one.  Indeed, in 2017, the U.S. Supreme Court’s decision in Epic Systems v. Lewis greatly strengthened the enforceability of arbitration agreements, denying countless workers and other plaintiffs the right to litigate their claims in court—and, in particular, the right to pursue their claims on a class and/or collective basis.  Since then, Congressional Democrats have pursued legislation that would overturn the Epic Systems decision, including the Restore Justice for Workers Act and the Protecting the Right to Organize Act, or “PRO Act.”  Both pieces of legislation have stalled, currently without any clear path to passage.

However, the Senate Judiciary Committee has recently revived the Democratic Party’s push to end forced arbitration, this time with a narrower scope.  Last month, the Committee voted unanimously to advance the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act.  The bill—which will now move to the Senate and, if it receives a majority vote, the House—would invalidate mandatory arbitration agreements in civil actions alleging sexual harassment or assault, thus giving victims of workplace harassment the right to have their day in court.  

While the bill has received some public support from Republicans, any optimism should be tempered given prior efforts to pass similar, albeit much broader, legislation.  That said, should the bill become law, it would constitute a major win for workers insofar as it would allow at least some of them to hold their employers and abusers accountable in open court, rather than hiding those disputes behind the cloak of confidential, forced arbitration.