May 2011

On April 27, 2011, the United States Supreme Court dealt a serious blow to the country's trial bar and its growing penchant for class action lawsuits that make plaintiff lawyers wealthy but frequently do little for consumers or class members. In AT&T Mobility, LLC. v. Concepcion, in the face of an attempted class action lawsuit alleging false advertising by consumers in California, AT&T moved to dismiss based on its customer service contracts. The contracts included a clause requiring arbitration of disputes and a "class action waiver" clause that barred customers from participating in a class action lawsuit against AT&T. The plaintiffs argued the "class action wavier" provision was "unconscionable" under California law and had no legal effect. However, in a shocking decision the U.S. Supreme Court sided with AT&T, holding the Federal Arbitration Act ("FAA") trumped state laws that interfered with Congress' broad support for arbitration embodied in the FAA. Accordingly, the class action failed and any consumers that have a beef with AT&T now have to proceed with arbitration, individually.

The justices divided along predictable ideological lines, with conservatives comprising a narrow 5-4 majority. Dissenting liberal justices argued the ruling would make it hard for consumers with small-dollar grievances to join together and sue businesses. But the majority stated that to allow a person to switch to "class arbitration sacrifices the principal advantages of arbitration - and makes the process slower, more costly and more likely to generate a procedural morass than final judgment." The Court's majority also recognized that class-wide arbitration greatly increases a defendant's risk because errors in arbitration largely go uncorrected due to the severely limited scope of judicial review of arbitration awards.

Although this decision involved commercial contracts, its reasoning should apply similarly in the employment context. The trial bar is no doubt devastated. Clever plaintiff's counsel cannot use class actions in court to get around arbitration agreements. Also, employers now have a formidable weapon against the growing number of class action wage and hour, equal pay, gender discrimination, employee benefits, age and disability law suits (to name only a few).

Whether arbitration agreements are right for a particular employer requires consideration of all the many pros and cons of arbitration versus litigation in court. Businesses most at risk of facing class action claims due to their sheer size or because they are in an industry targeted by government agencies and class action plaintiff lawyers, will definitely want to explore implementing agreements that mandate arbitration of employment disputes of all kinds while barring the grouping of such claims (i.e. class actions). In exchange for these protections, however, employers make it easier and potentially quicker for employees to pursue such claims through arbitration. Employers are also cautioned that remedies available to employees remain the same whether in arbitration or court. Therefore, before rushing to implement arbitration agreements for employees, prudent employers will first consult with knowledgeable employment attorneys to assist them in deciding if arbitration is right for their particular business and workforce.

If you believe your business could benefit from mandatory arbitration agreements for employees, including the now legally recognized class action waiver clauses, contact any of the Managing Shareholders at any of our Wessels Sherman law offices: