Based only on what the article states (you are correct about papers not accurately reporting court hearings), I would have dismissed the case only because if the contract requires arbitration, the parties must first arbitrate their dispute. A possible caveat is the fact that this was a contest and may not be arbitrable unless the arbitration clause has the standard "arising out of or related to" language in it, which you must know based on your position is the broadest of all contract language.
If the contract does indeed state "mediation or arbitration" (language that would surprise me a great deal because mediation prior to a lawsuit would favor the employee). The real key as to whether she must first arbitrate the dispute is whether or not there is a written arbitration clause in a contract or whether it is just part of an employees manual given to her after she signed a contract. If there is no valid contract, she can skip arbitration/mediation if she wants. As for whether she has a cause of action against Hooters, it is clear that she does. There appears to have definitely been at least an implied contract, which means there is a question of fact involved. Where there are questions of fact and a valid claim, the case must go to a jury if one is requested. Quite frankly, if I were the judge on this case, she would win on a motion for summary judgment if one were requested. Even though I think she has a slam dunk case on summary judgment, her attorneys will want this to go for a trial in order to maximize the award. A curious question. Does Florida have a "tort of outrage" as a cause of action in its legal system?
And lest you think I am sympathetic to frivolous lawsuits, I was very vocal about the stupid waitress that sued Hooters for sexual harassment b/c she supposedly thought "Hooters" only referred to as an owl mascot and supported the company in that particular case.