California employers may have been given a significant legal victory recently as the United States Supreme Court ended California’s judicial prohibition of class action waivers in arbitration agreements.
California’s Supreme Court had previously conditioned enforceability of arbitration agreements on the availability of class action procedures in arbitration, and California’s trial and appellate courts had generally refused to enforce arbitration agreements that expressly disallowed class action procedures in arbitration. In AT&T Mobility LLC v. Concepcion, however, the Supreme Court determined that the Federal Arbitration Act (“FAA”) prohibits such conditional enforceability and instead requires all courts to enforce arbitration agreements according to their terms, even if those terms prohibit class proceedings in arbitration.
The Concepcion Court addressed defendant AT&T Mobility’s motion to compel arbitration under a cell phone contract requiring arbitration to be pursued on an individual basis, not as a representative of a class of thousands of similar customers. In doing so, it comprehensively analyzed the 2005 decision of the California Supreme Court in Discover Bank v. Superior Court, which held that arbitration provisions precluding class-wide arbitration are unconscionable and unenforceable in “contracts of adhesion” (e.g., a “take it or leave it” consumer agreement in which the non-consumer party writes the contract to its decided advantage).
In a 5-4 ruling (split along familiar conservative versus liberal lines), Justice Scalia wrote that California’s Discover Bank rule “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” by interfering with the FAA’s mandate. Because the FAA requires courts to enforce arbitration agreements according to their terms – just like any other contract – the Discover Bank rule is preempted by the FAA.
While the Concepcion decision applied specifically to a consumer agreement, the ruling directly calls into question California’s distaste for class action waivers in employment arbitration agreements. Specifically, Concepcion almost certainly means that the FAA also preempts and invalidates the California Supreme Court’s Gentry v. Superior Court decision, which held that an employment arbitration agreement containing a class action waiver was unenforceable in a wage and hour class action case if the court determined that class-wide arbitration “would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.” Gentry, decided in 2007, was based on the Discover Bank case that has now been rejected by the U.S. Supreme Court.
Hill, Farrer & Burrill LLP is currently handling an appeal that will ask a California Court of Appeal to recognize that Concepcion effectively overturns Gentry and requires enforcement of employment arbitration agreements that prohibit class arbitrations in wage and hour cases, at least in cases under the FAA.
In light of the Concepcion decision, employers may want to review their current arbitration policies or agreements to determine whether they currently bar class actions in arbitration, and if not, to evaluate the potential advantages of doing so. Please do not hesitate to call your attorney at Hill, Farrer & Burrill LLP if you would like assistance in the review or redrafting of your employment arbitration policies or agreements.