Authored by Tim Watson
What do you get when you add yesterday’s United States Supreme Court decision in AT&T Mobility, LLC. v. Concepcion with the Court’s decision last year in Stolt-Nielsen S.A. v. Animalfeeds International, Corp.?: A lot fewer employee class and collective actions and a whole lot more arbitrations . . . . At least that may be the result if employers take advantage of these decisions and implement mandatory arbitration to resolve all workplace disputes, including wage and hour disputes under the FLSA and similar state statutes.
In yesterday’s decision, the Supreme Court held that federal law (the Federal Arbitration Act “FAA”) preempts a California rule that banned class action waivers in arbitration agreements. Thus, employers can have class action waivers in arbitration agreements with employees (as long as the waivers comply with the FAA), and state courts and state lawmakers cannot prevent employers from doing this. In last year’s Stolt-Nielsen’s decision, the Court held that if parties to an arbitration agreement did not intend to allow class claims, arbitrators have no power to impose class-wide arbitrations under agreements that are merely “silent” on the issue.
Taken together, the two decisions could “end class-action litigation in America as we know it,” as Vanderbilt law professor Brian Fitzpatrick predicted would happen if the Court ruled in favor of AT&T. Justice Breyer echoed this prediction in the dissenting opinion when he questioned: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” The majority, however, in an opinion written by Justice Scalia, responded that such a concern does not belong in the Court’s analysis. Rather, the Court should decide only the issue before it—whether California’s ban on class action waivers is inconsistent with the FAA—and not concern itself with unrelated matters. As Justice Scalia wrote, “The dissent claims that class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system, . . .[b]ut states cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”
The Supreme Court’s ruling in the AT&T case overturned a previous ruling of the Ninth Circuit that had found AT&T’s arbitration agreements with its cell phone customers to be unenforceable because the agreements waived customers’ rights to bring claims in arbitration on behalf of a class. The Ninth Circuit’s decision rested on Discover Bank v. Superior Court, 36 Cal.4th 148, 113 P.3d 1100 (2005), in which the California Supreme Court held that class action waivers in consumer arbitration agreements are unconscionable if the agreement is in an adhesion contract, disputes between the parties are likely to involve small amounts of damages, and the party with inferior bargaining power alleges a deliberate scheme to defraud. Yet the Court held that the Discover Bank rule is preempted by the FAA because, as Justice Scalia wrote, it “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”
It is expected that class arbitration waivers will continue to face assault from legislative initiatives and from a new source: the National Labor Relations Board (“NLRB”). Following the directive of former NLRB General Counsel Meisburg in a Memorandum issued on June 16, 2010, the NLRB has issued complaints against companies that maintain class actions waivers in pre-dispute arbitration agreements on the theory that such agreements interfere with employees statutory right to engage in concerted activity. In addition, it is also expected that other federal enforcement agencies, such as the EEOC, also may take active steps to promote collective litigation strategies against employers they deem to be violating federal law.
In light of AT&T Mobility v. Concepcion, it behooves employers with pre-dispute arbitration agreements in employment contracts to consider inserting class- and collective-action waivers if their agreements do not already contain them. Employers without arbitration programs are likely to consider adopting them as a means to manage the risk of wage & hour and other class or collective actions.