June 25, 2013

The United States Supreme Court Again Supports the Class Action Waiver in Arbitration

No surprise here.  The United States Supreme Court continued on a consistent path and found that a waiver for class actions in an arbitration agreement was enforceable.  In American Express Co. v. Italian Colors Restaurant, two businesses challenged the waiver of a class action in the arbitration agreement it had with American Express by pursuing federal anti-trust claims.  The Supreme Court, in a decision that was consistent with AT&T Mobility v. Concepcion (2011), found that such class waivers were enforceable under federal law, as they are under state law (Concepcion).

Although these are consumer class actions, the rulings are applicable in the employment context.  The recent activity at the Supreme Court highlights the ability of an employer to enforce an arbitration agreement that precludes class actions, including wage and hour matters.

In California, there has been a split in the state Courts of Appeal as to whether Concepcion precluded class action waivers of employment claims, including wage and hour claims, in light of a prior California Supreme Court case, Gentry v. Superior Court (2007).   Gentry focused on four factors in determining that a class action waiver would not be found valid in a wage and hour case:  the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration.  The split among the Courts of Appeal has resulted in the California Supreme Court agreeing to resolve the issue in Iskanian v. CLS Transportation.  This recent decision in American Express provides substantial support for validating a class action waiver and not employing a multi-factor test, as set forth by Gentry.  Justice Scalia, writing for the majority, specifically rejected this “effective vindication”  argument and the notion that class action waivers are invalid because there is no economic incentive to pursue particular claims individually in arbitration.

Employers with arbitration agreements should revisit the language to ensure the appropriate waiver is included.


Category: Arbitration,