Supreme Court to hear Iowa arbitration clause issue in overtime case

The U.S. Supreme Court will hear a case in 2022 brought by an Iowa fast-food worker who claims that employers have no right to force arbitration on employees after first contesting the lawsuit in pretrial proceedings.

The Taco Bell worker, Robyn Morgan, was part of a class-action lawsuit seeking back pay for alleged overtime violations. After litigating the case for eight months in court, the Taco Bell franchisee invoked the arbitration clause contained in Taco Bell’s standard employment contract.

Iowa Federal District Court Judge John Jarvey ruled for the employee, finding her employer waived its right to arbitration by waiting too long and litigating the case. But the Eighth Circuit Court of Appeals disagreed, stating the delay did not hurt the employee’s chance of a fair outcome in arbitration as she was not “prejudiced” by the delay as no discovery was conducted and Morgan would not have to duplicate her efforts in arbitration.

In 2018 the U.S. Supreme Court, in the Epic Systems Corp. case ruled on a 5-to-4 vote that companies can use arbitration clauses in employment contracts to prohibit class action litigation.

Then-Justice Ruth Bader Ginsburg dissented, claiming arbitration will result in a “huge under enforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”

She noted that in 1992, only 2 percent of nonunion employers use mandatory arbitration agreements, but 54 percent did so in 2011.

The majority disagreed, stating that the Federal Arbitration is proof that Congress favors arbitration, and the virtues that Congress originally saw in it for speedy and inexpensive resolution of claims.

Arbitration was meant to displace litigation.

In early February 2022, Congress approved bipartisan legislation called “Ending Forced Arbitration of Sexual, Assault and Sexual Harassment Act of 2021,” barring the use of forced arbitration to address sexual assault and harassment claims in the workplace, and sent it to President Joe Biden who is expected to sign it.

Now, with Justice Ginsburg’s death and the two additions to the court with Trump appointees, the conservatives have a 6-3 majority. The past decisions indicate that the so-called conservative judges favor arbitration, while the so-called liberal judges are less in favor of arbitration.

The U.S. Supreme Court generally has expanded access to arbitration in the last several years.

So what is the takeaway on this arbitration case? If you still use arbitration agreements with your employees, make sure you tell your attorney about the signed arbitration agreement at the first sign of litigation. Do not wait.

Another option to arbitration is to consider revising your employment agreements with employees to include a jury trial waiver.

Jury waivers offer an important protection against run away emotional distress — and emotional verdicts. If an employer requires its employees to sign a jury waiver, any dispute covered by the waiver will be resolved in court by a judge and not a jury.

Several Iowa federal court judges have approved these waivers.

There are trade-offs in waiving a jury trial.

For example, a bench trial is effectively a jury of one person. The parties have to live with the judge assigned to them.

In addition, a judge in a bench trial may be more active in asking questions of witnesses on the stand, both because the judge is the finder of fact and because there is no jury to be unduly influenced by a judge's questions.

Furthermore, in a jury trial, the judge may have concerns about permitting evidence that may be inflammatory or unfairly prejudicial.

In a bench trial, however, a reviewing court generally will assume that the district court was not influenced by evidence improperly brought before it unless there is evidence to the contrary.

On the plus side, bench trials tend to result in better guidance to the parties about their case and the logic behind the decision.

For example, in an action tried without a jury the court must find the facts specially and state its conclusions of law separately.

By contrast, in jury trials both sides are frequently left wondering why the jury ruled the way it did, and the attorneys — only if the court permits them — often are left to contacting each juror to find out the logic for their ruling.

Notwithstanding how the U.S. Supreme Court rules in the Iowa Taco Bell case, if you are looking to an alternative to arbitration, employers should consider having all employees sign jury trial waivers.

Wilford H. Stone is a lawyer with Lynch Dallas in Cedar Rapids.