Be Clear: Include Class Arbitration Waivers In Arbitration Clauses


The Supreme Court of the United States continued its hot streak in the arbitration and class action waiver arena with two recent decisions. These decisions are important for employers because they may offer employers a way control expenses related to dispute resolution with employees. Because those expenses can be so high, many employers are considering implementing employment arbitration agreements, consistent with the direction provided by the Court.

In Oxford Health Plans, LLC v. Sutter (pdf), the Supreme Court held that courts owe almost complete deference to arbitrators' interpretations of arbitration agreements. And, if an arbitrator determines that the parties agreed to allow class proceedings, a court should not overturn the arbitrator's interpretation no matter how "good, bad or ugly" the interpretation may be. This means that an employer could be forced into a class action arbitration even if not specifically provided for in an agreement. Just a few weeks later, however, the Supreme Court provided direction to employers to avoid the potentially troubling situation presented by Oxford Health.

In the subsequent decision, American Express Co. v. Italian Colors Restaurant (pdf), the Supreme Court held that individuals can waive their right to class proceedings under federal law by agreement.  In short, the Supreme Court ruled that the law only requires that individuals can pursue their statutory claims. Class action waivers, the High Court said, only effect individuals' abilities to prove, not pursue, statutory claims. The plaintiffs in Italian Colors attempted to bring a class action antitrust suit despite having signed a class action waiver. The expert fees to prove damages would cost over $100,000 (and perhaps up to $1 million) when even the treble recovery would be only around $35,000 per plaintiff. Without a class proceeding, the plaintiffs argued, they could not share this cost and their claims were therefore not worth the cost of proving them.

Nonetheless, the Supreme Court held that a class proceedings waiver is enforceable, unless there is no actual agreement under state law [because the agreement is "unconscionable," for example] or if a federal statute guarantees parties' rights to class proceedings for a particular claim. The Supreme Court left open the door for plaintiffs, however, to argue that excessive filing and administrative fees, as opposed to expert fees, meet an exception designed to prevent "prospective waiver of [the] right to pursue statutory remedies."

So, you might ask: What does this mean? It is simple, really. An employer who wishes to avoid class proceedings should have employees expressly waive that option in an agreement. In so doing, the employer not only removes the uncertainty associated with an arbitrator's interpretation of the agreement, but also helps ensure that class proceedings are avoided, assuming there are no statutory rights to class proceedings for the specific claim and that the agreement is not otherwise unenforceable.

This post was contributed by Esch McCombie, a Summer Associate with McNees Wallace and Nurick LLC. Mr. McCombie will begin his third year of law school at the Penn State University Dickinson School of Law in the fall, and he expects to earn his J.D. in May 2014.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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