A divided Supreme Court has determined that class action waivers in arbitration agreements are valid and enforceable. American Express Co. v. Italian Colors Restaurant, 2013 U.S. LEXIS 4700. As a result, employers may lawfully include class action waivers in their arbitration agreements and ultimately force employees to pursue claims individually. This decision resolves some of the ambiguity stemming from the decision in Oxford Health Plans, LLC v. Sutter, which was also recently decided by the Court.
In American Express, Justice Antonin Scalia (writing for a 5-3 majority) indicated that courts are not permitted to invalidate arbitration agreements that specifically waive class actions unless Congress has determined that class action proceedings are so necessary that they trump the Federal Arbitration Act (FAA).
This holding applies to all arbitration agreements, including those used by employers to resolve disputes with employees, even if the cost of proving the employee's case in arbitration would be considered prohibitive (expert witness fees, for example). On the other hand, expensive filing fees could render arbitration agreements unenforceable if the fees would preclude or deter individuals from initiating arbitration proceedings in the first place.
The American Express case arose from a dispute among merchants who accept American Express credit cards as payment. The "Card Acceptance Agreement" contained a mandatory arbitration clause and a class action waiver, meaning that merchants were obligated to arbitrate their disputes with American Express, and that they had waived their right to arbitrate their disputes as a class.
Nevertheless, a class of merchants sued American Express in federal court, alleging that it had forced them to pay excessive merchant discount fees and that they could not reasonably pursue their claims individually due to the high cost associated with hiring expert witnesses. The Second Circuit Court of Appeals ruled in favor of the merchants, holding that the class action waiver was unenforceable because the excessive costs necessary to prevail in individual arbitration prevented the merchants from pursuing their rights.
The Supreme Court overturned the Second Circuit ruling and reiterated that arbitration agreements are contractual agreements and courts should "rigorously enforce [them] according to their terms."
This decision reinforces the idea that employers should consider using arbitration agreements as an efficient, cost-saving method to resolve their disputes with employees. Employers may also consider class action arbitration waivers as a means to prevent employees from banding together to pursue claims. In doing so, employers should include some cost-setting provisions to keep fees modest so as not to prevent individuals from asserting their rights. They should also be aware of the many factors that courts will utilize to determine whether arbitration agreements are enforceable.