Authored by Patrick Bannon

What does an antitrust case have to do with wage and hour litigation?  Usually, not much, but a case argued before the Supreme Court two weeks ago is an exception.

American Express Co. v. Italian Colors Restaurant is an antitrust case in which American Express seeks to enforce a restaurant’s agreement to arbitrate all disputes on an individual basis, with no “class arbitration.”  

The restaurant claims that the arbitration agreement is unenforceable because individual arbitration would not permit the “effective vindication” of its federal antitrust claim.  According to the restaurant, it suffered only a few thousand dollars of damages but proving an antitrust violation would require expert economic analysis costing at least $300,000.  Thus, the restaurant argues, if it can’t pursue its claim as part of a class action or class arbitration, it won’t be able to pursue it at all.

Employers who have entered into arbitration agreements with their employees should pay attention:  plaintiffs’ lawyers often raise a similar argument in FLSA cases.  According to the plaintiffs’ bar, an employee’s FLSA claims is often too small to pursue except as part of a collective action.  Therefore, this argument concludes, an employee’s agreement to arbitrate on an individual basis can’t be enforced as to an FLSA claim because enforcement would prevent the “effective vindication” of the employee’s FLSA rights.

At the argument, the Supreme Court Justices seemed divided about the enforceability of American Express’s arbitration agreement. 

Justices Kagan and Ginsburg sounded the most concerned about the effective vindication argument.  They compared the agreement to pursue only individual arbitration to an agreement never to assert any antitrust claims at all. 

Justice Scalia was more skeptical.  He questioned whether there was anything wrong with accepting that some legal claims might simply be too small or too expensive to assert.

Justices Breyer, Kennedy and Roberts seemed to doubt the restaurant’s premise that it needed a class action or a class arbitration to vindicate its rights.  They asked why the restaurant couldn’t work with a trade association or another friendly deep pocket to share the cost of an expert report and then, if there were merit to the general theory, use the report (plus the favorable outcome of each earlier arbitration) to win one claim after another. 

Justice Breyer and Justice Scalia also expressed concern about establishing a rule that would require a judge to assess the costs and benefits of pursuing each particular claim before enforcing an arbitration agreement.  Justices Alito and Thomas were quiet and Justice Sotomayor has recused herself from the case.

Unlike federal antitrust claims, FLSA claims can often be brought without an expert.  On the other hand, the FLSA includes Section 216(b), which authorizes collective actions.  Despite these difference, the Supreme Court’s view of the “effective vindication” doctrine is likely to have major consequences for how courts handle agreement to arbitrate FLSA claims on an individual basis. 

We will provide an update when the Supreme Court issues its decision, which will be sometime between now and the end of June.