The U.S. Supreme Court, in a 5-4 decision,  yesterday held that the Federal Arbitration Act preempts state laws that discuss or limit arbitration agreements on the availability of class action arbitration procedures. 

The case, AT&T Mobility v. Concepcion (download here) isn’t an employment law case (it concerns whether AT&T should have charged consumers sales tax on supposedly "free" cell phones. But in so holding, the Supreme Court has opened the door wide that make arbitration agreements an important consideration for employers.

The Employment Class Action blog has a detailed summary of the case and its impact here:

The importance of this decision cannot be overemphasized and will likely be a topic of discussion for months or years. At its most basic level, the Concepcion case means that an employer can avoid class actions by providing for arbitration of employment claims and limiting arbitration to the resolution of claims on an individual basis. The decision also appears to limit other court-made restrictions to arbitration and my make arbitration overall a much more favorable alternative for employers trying to control their litigation costs.

The Bottom Line: The Supreme Court has now recognized that employers can avoid class actions through their arbitration agreements. Expect much more from courts, commentators, and Congress over this issue.

For employers, this decision at a minimum means that employers should revisit the topic internally. Is this a practice you want your company to follow? If so, how will you go about creating procedures and policies to meet this? 

It could be a very busy spring and summer for employers and their attorneys. 

For more background, see also this post by Michael Fox of Jottings by Employer’s Lawyer.

  • This ruling makes this a very dark day for employees. Employers have already inserted class action waivers into their handbooks and arbitration policies. Judge Bryant in Connecticut has already upheld such a clause. Employees ability to use the FLSA collective action mechanism to pool resources and enforce their rights will be a thing of the past if employers include this language in their policies. Only the Secretary of Labor will be able to bring such actions. Congress must act to reverse this ruling. Of course, the cost to defend individual arbitrations usually far exceeds their value, so most arbitrations will be settled for full value once they are filed. This ruling makes no sense and is impediment to employees’s wage hour rights.