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Supreme Court Upholds Bar on Class Action Arbitrations

    Client Alerts
  • May 06, 2011

Some employers have reacted to unpredictable and often costly court proceedings by requiring employees to agree to mandatory arbitration of disputes between the parties as a condition of employment. Many of these mandatory arbitration agreements contain a provision requiring that the claim be heard individually, and not as part of a class action arbitration of claims. This provision would prevent a plaintiff from initiating a class or collective action arbitration for FLSA or employment discrimination claims, as has become the norm for court proceedings under these statutes.

Last week in a 5-4 decision, the U.S. Supreme Court rejected a California state court decision that invalidated class action arbitration bans as unconscionable. AT&T Mobility LLC v. Concepcion involved a consumer cell phone contract that mandated arbitration, but prohibited users from joining or initiating class action arbitrations against the carrier. California courts voided the agreement, finding that the bar would make it impractical for addressing claims involving small monetary amounts for individual customers.

The Court's majority decision concluded that the Federal Arbitration Act preempts California state law, and specifically allows mandatory arbitration agreements to exclude class action arbitrations. Arbitration was found to be a quick and less expensive way to resolve disputes as opposed to class action claims, which were deemed unsuitable for most arbitration proceedings.

This decision has direct implications for employment arbitration agreements. Employers that use such agreements should consider adding the class arbitration bar in order to prevent FLSA and other class and collective action claims by employees. In Concepcion, the majority noted that the AT&T agreement contained provisions that allowed claims to be brought in small claims court as opposed to arbitration, and also paid the customer's arbitration costs if they prevailed on their claim. Employer mandatory arbitration agreements should also be reviewed for general fairness to make certain that they are not subject to legal attack on other grounds.

Mandatory arbitration agreement are not suitable for all employers. In areas of the U.S. with more conservative federal judges and jury pools, traditional litigation may be cheaper, due to the greater chance of disposal of claims on summary judgment. However, in situations where these agreements are used, Concepcion gives employers a way to avoid class and collective action employment claims.