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Thursday, Mar 28, 2024

U.S. Supreme Court OKs Class Action Waivers in Arbitration

The United States Supreme Court recently issued a landmark arbitration ruling involving consumer arbitration agreements, which is likely to have wide applicability in the employment setting, as well. In the case of AT&T Mobility LLC v. Concepcion, the Supreme Court gave a “green light” to the enforcement of consumer arbitration agreements that contain a provision where the consumer waives the right to pursue class action remedies altogether. In doing so, the Court specifically rejected a 2006 California decision (Discover Bank v. Superior Court) which struck down such agreements. Although AT&T Mobility is not an employment case, the High Court’s ruling also appears to overrule a 2007 California employment case, which outlawed most class action arbitration waivers in overtime pay cases. Here’s what the Supreme Court decided, and what the decision means to your business. Background. In 2002, Vincent and Liza Concepcion entered into a contract to sell and service cell phones with Cingular Wireless, which was later bought out by AT&T Mobility. The contract required arbitration of all disputes which the Concepcions may have had with AT&T. It also contained a so-called class action waiver provision, which prohibited them from filing a class action – either in arbitration or in court. Despite this agreement, the Concepcions went ahead and filed a class action suit against AT&T in a San Diego federal court for false advertising and fraud. AT&T asked the district court to enforce their arbitration agreement by ordering the Concepcions to pursue their claims in arbitration as individuals. AT&T claimed that the Concepcions should be bound by the arbitration agreement they signed — specifically the provision that barred any type of class action claim. According to AT&T, the Concepcions’ only remedy was to pursue arbitration of their individual claims. The lower court refused to go along with what AT&T wanted. Instead, the court ordered the case to be arbitrated, but allowed the Concepcions to pursue the class action before a private arbitrator. The court based its decision on an earlier California Supreme Court decision (Discover Bank) which outlawed most class action waivers in arbitration agreements. On appeal, the Ninth Circuit U.S. Court of Appeals agreed with the lower court ruling. AT&T then asked the Supreme Court to review the case. The case was closely watched by consumer and business groups alike. Business groups were hoping that the Supreme Court would enforce the arbitration agreements that have become so common in consumer transactions. Consumer groups wanted the Supreme Court to outlaw class action waiver provisions in arbitration agreements. The Supreme Court’s Ruling. By a 5-4 vote, the U.S. Supreme Court sided with AT&T and the business groups that like arbitration agreements. In doing so, the Court found that the earlier California case (Discover Bank) was wrongly decided insofar as that case barred arbitration agreements from covering class claims. According to the Supreme Court, the agreement that the Concepcions signed was perfectly valid and enforceable and should bind them. Relying upon another federal law known as the Federal Arbitration Act, the Court noted that the federal act requires courts to enforce arbitration agreements like this one “on an equal footing with other contracts.” The Court did note that parties remain free to enter into arbitration agreements that allow class claims to be decided in arbitration. However, California and other states cannot impose classwide arbitration on any unwilling party as a condition of enforcing an arbitration agreement, where the agreement contains an express class action waiver like this one. Applying The Decision To Employment Class Actions. Although AT&T Mobility only involved a “consumer” agreement, it most likely applies to class action waivers in employment arbitration agreements as well – especially in the wage/hour arena. It may also apply to other employment cases. One especially significant question for California employers is whether the new case will have any impact on a 2000 California Supreme Court case, which announced minimum requirements for a pre-dispute agreement to arbitrate employment bias cases. That case said that employment arbitration agreements are not enforceable under state law unless: (1) there is no limitation on the type of damages ordinarily allowed in a lawsuit; (2) there will be a written decision; (3) the employer essentially pays for entire cost of the arbitration; and (4) the parties may pursue adequate discovery such as depositions, document production and interrogatories that are allowed in civil lawsuits. Applying The Decision To Your Workplace. The AT&T Mobility decision may make mandatory arbitration agreements with class action waivers a more attractive option for some California employers – particularly larger companies that face a greater risk of costly class action lawsuits. However, there also are significant risks for employers to weigh when considering arbitration. Significantly, in most cases, there is no right to appeal an arbitrator’s decision – even if the arbitrator makes baseless factual findings or completely disregards the law. Also, because of the very nature of arbitration (i.e., it’s supposed to be a less formal, faster and less burdensome process), there is a fair chance that many more cases will be pursued. Still, most risk managers believe that arbitration is likely to be advantageous to employers because arbitrators tend to be less likely than jurors to issue excessively high monetary awards in employment cases. In light of the new ruling, employers should consider reviewing their arbitration agreements to add a class action waiver provision. Employers without arbitration agreements will want to weigh the benefits of having one at all. Richard S. Rosenberg is a founding partner of Ballard Rosenberg Golper & Savitt LLP, a management side labor law firm in Glendale. Rosenberg was selected as one of the 25 best lawyers in the San Fernando Valley. He may be reached at (818) 508-3700 or [email protected].

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