State Limitations On Arbitration Agreements Are Preempted By Federal Law

AT&T Mobility v. Concepcion, 563 U.S. ___, 2011 WL 1561956 (2011)

In this landmark new opinion, the United States Supreme Court held that the Federal Arbitration Act (“FAA”) prohibits states from conditioning the enforceability of an arbitration agreement on the availability of class action arbitration procedures. Although this case arose in the consumer context (it involved AT&T’s charging sales tax for “free phones”), it has far-reaching implications for employers in California and elsewhere. In recent years, the California Supreme Court has fashioned special rules for the enforceability of employment arbitration agreements, including in Gentry v. Superior Court, 42 Cal. 4th 443 (2007) (subjecting class action waivers to a rigorous, four-factor test) and Armendariz v. Foundation Health Psychcare Servs., Inc., 24 Cal. 4th 83 (2000) (requiring employers to pay all costs and expenses unique to arbitration such as the arbitrator’s fees). The continued viability of these and similar rules is now in serious doubt. In the wake of this important new opinion, employers are well advised to reconsider the relative costs and benefits of adopting a mandatory arbitration regime for their workforce.

Published In: Alternative Dispute Resolution (ADR) Updates, Labor & Employment Updates

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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