In A.T.&T. Mobility LLC v. Concepcion (“Concepcion”), a recent decision of the United States Supreme Court, a narrow 5-4 majority held that an individual arbitration clause can operate to defeat a class process. The ruling upheld provisions within an arbitration agreement that provided for individual arbitration in the face of an attempt by Concepcion to have the matter resolved by way of a class arbitration.

The case concerned a California standard form contract for use of a cell phone that provided for individual arbitration of the consumer’s claims. The Court found that a general rule in California that disallowed “no class action” clauses in arbitration provisions as unconscionable was “pre-empted” by the Federal Arbitration Act, which reflects a more liberal policy favouring arbitration, and places arbitration agreements on an equal footing with other agreements, meaning they should be enforced according to their terms. The Court made findings that class arbitration may interfere with the fundamental principles of arbitration, as the class proceeding process may increase cost, length, and procedural complexity for plaintiffs. The Court also noted that the Federal Arbitration Act contained a saving clause that permitted agreements to be invalidated by “generally applicable contract defences”, which would likely include unconscionability.

The decision in Concepcion is interesting for Canadians because the Supreme Court of Canada has not yet ruled definitively on the general enforceability of “no class action” provisions in arbitration agreements. The recent Supreme Court of Canada decision in Seidel v. Telus Communications Inc., which is discussed by Geoffrey Shaw in a previous Franchise Law e-Lert here, held that if a no class action clause is to be enforceable, it cannot be connected to an arbitration clause that otherwise is rendered unenforceable through legislation. In other words, where consumer protection legislation (or other legislation) exists that provides a specific right of access to the court, an arbitration clause will not act as a bar to a class action being certified for claims that emanate out of the specific “court access enabling clause”. However, the Court did not address whether such clauses are generally unenforceable on the basis of unconscionability.

Franchisors in Canada should keep an eye on developments in this area as franchise agreements often contain provisions which require individual arbitrations, and therefore the enforceability of these provisions in the face of attempts by franchisees to seek group arbitration continues to be a live issue.

Read the AT&T and Concepcion decision here.