The United States Supreme Court’s June 20, 2013, decision of American Express Co. et al. v. Italian Colors Restaurant1 will further bolster employers’ ability to enforce class action waivers contained in arbitration agreements. Historically, in the employment context, employee-friendly states such as California have been resistant to enforce class action waivers in arbitration agreements based on concern that enforcing such waivers would violate public policy. However, recent developments in the law at the federal level indicate that, with a properly drafted arbitration agreement, it is possible to implement and enforce class arbitration waivers nationally.
In AT&T Mobility LLC v. Concepcion2 (2011), the Supreme Court held the Federal Arbitration Act (FAA) preempts state laws that purport to invalidate class arbitration waivers. Concepcion left open the question, however, of whether the FAA could trump other federal statutes. The Supreme Court closed this loop in American Express when it held that a contractual waiver to class arbitration is enforceable under the FAA even when the plaintiffs’ cost of individually arbitrating a federal statutory claim is prohibitively expensive.
The case arose out of an antitrust dispute in which a merchant, Italian Colors, brought a class action against American Express Co. (“AmEx”) for charging higher credit card fees than competing cards. Italian Colors had signed a class arbitration waiver, which AmEx sought to enforce. On this basis, the federal district court dismissed the case, but the Second Circuit Court of Appeals reversed and remanded. The Second Circuit held that the class arbitration waiver was unenforceable because arbitration would be prohibitively expensive to pursue on an individual basis. The Supreme Court granted certiorari and reversed the Second Circuit’s ruling.
Despite Italian Colors’ argument that individually bringing an antitrust action would be prohibitively expensive, Justice Scalia, writing for the majority, concluded that this argument was insufficient to invalidate a class arbitration waiver. He reiterated the overarching principle that arbitration is a matter of contract and emphasized that courts must “rigorously enforce” arbitration agreements according to their terms. Although Justice Kagan argued in dissent that the “effective vindication doctrine” barred enforcement of the AmEx class arbitration waiver because that agreement effectively insulated AmEx from federal antitrust claims, the majority reasoned that the fact that individual arbitration “is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”
Although the case arose out of an antitrust dispute, it is likely to have an impact on the employment arena. Employers can be particularly vulnerable to class action claims, especially if they have a large number of employees. The AmEx decision builds on Concepcion and thereby further strengthens employers’ ability to enforce class action waivers in arbitration agreements. This decision will particularly affect the enforcement of class waivers in arbitration agreements for claims brought under numerous federal employment statutes. Some predict that this decision will most directly affect wage-and-hour litigation under the Fair Labor Standards Act (FLSA) and specifically the ability of employees to waive their right to pursue FLSA claims on a collective action basis. Currently courts are split as to whether the right to pursue a collective action under FLSA can be waived.3 Moreover, despite the AmEx decision, the National Labor Relations Board (NLRB) continues to staunchly maintain that mandatory class arbitration waivers—with respect to FLSA claims and otherwise—violate the National Labor Relations Act.
In the wake of AmEx, the plaintiffs’ bar, with the support of the NLRB, has been claiming the Court’s decision should be distinguished from the wage-and-hour context because, they claim, the right to proceed on a collective action basis under the FLSA cannot be waived. Management-side attorneys, however, maintain the Court’s decision will substantially undermine this argument going forward. The full impact of AmEx on class arbitration waivers in the employment context generally—and in particular on FLSA collective action waivers—will ultimately depend on how broadly the lower federal courts construe the Court’s guidance about rigorously enforcing arbitration agreements in accordance with their terms.
In any event, in light of this new development in the arbitration realm, employers may want to consider—in connection with advice from counsel—whether to implement arbitration agreements with employees, and if such agreements are already in place, whether they properly preclude class arbitration of employment claims. A well-drafted class arbitration waiver can be an effective tool for avoiding the tremendous expense and risk of an employment-related class action.