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Supreme Court: Prejudice requirement violates FAA

Published By | Jun 23, 2022 | Wage And Hour/Overtime

Legal issues regarding wage and hour claims do not always stem from conflicts over whether a violation occurred or who is to blame. In some cases, the process of resolving the dispute comes under fire.

Interpretation, creation of the laws

One example of a procedural issue in a wage and hour case involved a former Taco Bell franchisee and employee of the company Sundance Inc.

The case reached the U.S. Supreme Court, but not because of the employee’s claim that Sundance Inc owed her unpaid overtime. Instead, the issue presented to the high court involved the company’s motion to compel arbitration and whether the employee was required to show that she was prejudiced by the company’s delay in seeking to compel arbitration in seeking to avoid arbitration over her claims.

The case is a little complex, but essentially eight months after the employee filed a lawsuit against Sundance Inc. in federal court, and after the parties tried to settle the case through mediation, Sundance filed a motion to compel arbitration based on an arbitration provision in the employee’s employment contract

The District Court denied Sundance’s motion, finding that the company waived its ability to compel arbitration by participating in the lawsuit, which the Court determined was inconsistent with the company’s stated intention to arbitrate the claims.

Sundance appealed to the U.S. Court of Appeals for the Eighth Circuit, which reversed the decision of the lower court. The appeals court ruled that since the company’s litigation strategy did not prejudice the employee, the company had the right to compel arbitration.

The employee appealed the decision of the Eighth Circuit and the Supreme Court sided with the employee, holding that a rule requiring parties to show prejudice violates the Federal Arbitration Act. The case was sent back to the Eighth Circuit to determine whether Sundance waived arbitration because it waited to try to compel arbitration until after it litigated the case in court.

What does this mean for New York employers and employees?

This case reflects some highly technical details that can come into play in wage and hour disputes and other employment-related claims. Many employers require their employees to sign employment agreements containing arbitration provisions, which can have a significant impact on factors such as who decides the claims at issue and the parties’ options to appeal a decision. If you are an employee or employer facing this type of conflict, know that some legal nuances and rulings can dramatically affect the outcome of your case.

Considering how complicated these matters can be for legal professionals and courts to resolve, they can be all but impossible for individuals to navigate on their own. It is critical for parties in employment disputes to find experienced legal counsel to guide them through this process.

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