A Waiver of Rights to Assert Class Action Claims in Arbitration Agreements

In a potentially far-reaching decision affecting wage/hour and other class action litigation brought against employers, the United States Supreme Court has held in the case of AT&T Mobility LLC v. Concepcion et ux. (2011) 131 S.Ct. 1740, that an arbitration agreement may legally require a waiver of the right to assert class action claims in arbitration. Many important aspects of this ruling specifically abrogate or potentially alter previously controlling

California employment case law. The holding is on the cutting-edge of employment dispute resolution, and employers should immediately consider adopting or having their existing employee arbitration agreements reviewed with knowledgeable counsel to take full advantage of the new law.

AT&T Mobility v. Concepcion began in February 2002, when Vincent and Liza Concepcion purchased wireless phone service from Cingular Wireless that included free phones. The cellular telephone contract between the parties provided for arbitration of all disputes, and required that claims be brought in the parties' individual capacity, and not as a plaintiff or class member in any purported class. AT&T acquired Cingular in 2005. After the Concepcions were charged sales tax on the retail value of the phones, approximately $30, they sued AT&T in California Federal District Court in March 2006. Their lawsuit was consolidated with a class action alleging that AT&T had engaged in false advertising and fraud by charging sales tax on the "free" phones.

The Federal District Court denied AT&T's motion to compel arbitration pursuant to the Concepcions' contract, relying on the California State Supreme Court's decision of Discover Bank v. Superior Court (2005) 36 Cal.4th 148. Discover Bank held that class waivers in consumer arbitration agreements are unconscionable if the agreement is in an adhesion contract, disputes between the contracting parties predictably involve small amounts of damages, and if it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately defraud. The Ninth Circuit Court of Appeal in California agreed that the provision was unconscionable under California law, and held that the Federal Arbitration Act (FAA), which makes arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract," did not preempt its ruling.

In AT&T Mobility v. Concepcion, the United States Supreme Court found that nothing in the FAA suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives, which include the encouragement of arbitration to foster dispute resolution. The Court stated that the principal purpose of the FAA is to ensure "that private arbitration agreements are enforced according to their terms."

This new case is causing controversy because practitioners of employment law have quickly seen that the holding may extend to employment contracts between businesses and their employees. AT&T Mobility v. Concepcion relates to a consumer contract, not an employment contract. But the possibility that an employee arbitration agreement that includes a class action waiver could now be enforceable in California is receiving great and instant attention.

The California Supreme Court set out the requirements for an enforceable employment arbitration clause under the state Fair Employment and Housing Act in Armendariz v. Foundation Psychcare Services, Inc. (2000) 24 Cal.4th 83. This case has subsequently been applied to hundreds of employment law claims in California of various types. The requirements of an enforceable arbitration clause sufficient to resolve an employment dispute have become numerous. For example, the agreement cannot limit the remedies available to an employee in a court action, and must provide for sufficient discovery by the Plaintiff. The employer cannot require an employee to pay for the arbitrator or any additional costs beyond those routinely faced in court litigation. Also, there should be a written decision by the arbitrator capable of review, and the employer cannot unfairly limit the kinds of claims that are subject to the arbitration. Any employer in California seeking to add an enforceable dispute arbitration clause to its employment agreements with its employees has been required to satisfy the Armendariz requirements.

Currently, it is premature to conclude that AT&T Mobility v. Concepcion is so sweeping as to overrule Armendariz in its entirety. The Federal Supreme Court specifically held that a state would be free to enact a law "requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted" or other laws requiring adequate notice of arbitration agreements, so long as the laws do not "conflict with the FAA or frustrate its purpose to ensure that private arbitration agreements are enforced according to their terms." We may not learn the full extent that the Armendariz requirements remain valid after AT&T Mobility v. Concepcion until a sample case is brought to challenge Armendariz. Established restrictions on employment arbitration agreements may still be controlling, even if California courts can no longer invalidate an arbitration agreement for the sole reason that it prohibits class action arbitrations.

Businesses of all sizes therefore should consider revising their employment agreements to include arbitration provisions that bar class action claims in arbitration. The ability to successfully compel arbitration of employment disputes, and to prevent claimants from pursuing class action remedies in arbitration, are potential benefits to businesses, reducing exposure to the costs of traditional litigation, as well as significant class action damages. But such employment agreements must be properly drafted in light of the latest law. The experienced employment attorneys at Kring & Chung are well-versed in these issues, and are available to help your business draft employment agreements that minimize your liabilities, and maximize your rights under the law.

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