In a much anticipated follow-up to its 2011 decision in AT&T Mobility, LLC v. Concepcion, the U.S. Supreme Court held that a class action waiver in a commercial arbitration agreement between American Express and merchants who accept its charge cards is enforceable under the Federal Arbitration Act, even if the costs the individual merchants would incur to pursue their individual antitrust claims would exceed any potential individual recovery. Although the case arose in a non-employment context, the decision has significant ramifications in the workplace.
The plaintiff merchants argued to the Court that enforcing the class action waiver in the arbitration agreement would effectively preclude them from vindicating their rights under federal antitrust law due to the financial disincentive imposed by individual arbitration. Writing for the majority, Justice Scalia rejected that argument, explaining that absent a “contrary Congressional command” requiring the Court to reject the class action waiver – which the Court determined was not present in the Federal Arbitration Act – the Court would not invalidate the parties’ contractual agreement to arbitrate claims solely on an individual basis. The Court additionally rejected the merchants’ “effective vindication” argument based on those cost of individual arbitration relative to the potential recovery – an argument frequently advanced by plaintiffs at both the state and federal level – explaining that the “effective vindication” exception to enforcement of contracts applies to situations where the contract imposes a prospective waiver of the party’s right to pursue the claim. A class action waiver does not interfere with the right to pursue a claim, the Court explained, but instead limits the arbitration to the two contracting parties.
As noted above, the American Express case arose in the commercial context. But the Court’s holding, along with its reaffirmation of the principles it explained in Concepcion, strongly suggests, if not establishes conclusively, that a class action waiver in an arbitration agreement between an employer and an individual employee will be enforced. Employers thus have been provided a clear signal that deploying these waivers as a means to manage risk associated with potential class discrimination, wage and hour, employee benefits, and other employment-related claims will be enforced and pass judicial review.