Prior to its summer recess, the U.S. Supreme Court issued another decision concerning class arbitration which has implications for unionized and non-unionized employers with agreements to arbitrate workplace disputes.
In American Express Co. v. Italian Colors Restaurant, the Supreme Court held that the Federal Arbitration Act (FAA) does not permit courts to invalidate a contractual waiver of class arbitration simply because the plaintiffs’ cost of individually arbitrating their claims against the company exceeds their potential recovery. The Supreme Court reaffirmed its opinions in Stolt-Neilsen S.A. v. AnimalFeeds Inter. Corp., which held a company may not be compelled to submit to class arbitration without a contractual basis for doing so, and AT&T Mobility LLC v. Concepcion, which held the FAA preempts state laws that prohibit contracts from disallowing class arbitration.
The plaintiffs in American Express were merchants who accepted American Express credit cards at their stores and restaurants. Their agreement with American Express contained a clause that required all disputes to be resolved through binding arbitration, and provided that “[t]here shall be no right or authority for any claims to be arbitrated on a class action basis.”
The merchants brought a class action suit against American Express alleging violations of various antitrust laws. American Express moved to compel individual arbitration pursuant to the clauses in its agreements with the merchants. The merchants certified to the trial court that the amount necessary to prove the antitrust claims could exceed one million dollars, whereas the maximum potential recovery for an individual was only $38,549. The trial court was not persuaded, and dismissed the merchants’ lawsuit pursuant to the class waiver provision. However, the Second Circuit Court of Appeals reversed, holding that because the merchants had shown they would incur “prohibitive costs if compelled to arbitrate under the class action waiver,” the waiver was unenforceable and class arbitration could proceed.
American Express appealed to the Supreme Court. The merchants argued there was a judge-made exception to the FAA, which allows courts to invalidate agreements that prevent the “effective vindication” of a federal statutory right — here, the fact that the cost of litigating the antitrust claims individually would be more than any recovery prevented the vindication of their rights. The Court rejected this argument, stating “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” In other words, the cost did not prevent the merchants from pursuing their antitrust claims, it simply made litigating the matter not worth their while financially. The Supreme Court ultimately held that arbitration agreements providing for a waiver of class arbitration may be enforced regardless of whether it is too expensive for plaintiffs to pursue their claims individually given the potential maximum recovery.
In light of recent Supreme Court decisions upholding class arbitration waiver provisions, employers should consider incorporating class waivers in employment agreements. However, particularly in light of the specificity required by courts and unresolved case law concerning class waivers on appeal from the National Labor Relations Board, employers should always confer with counsel when incorporating class waiver dispute resolution language in employment agreements to understand the risks and benefits of these provisions.