The end of wage-and-hour class actions

Lexology.com
Venable LLP
Daniel B. Chammas, Richard J. Frey, Rebecca M. Aragon and Robert A. Friedman
USA
April 29 2011

In a decisive victory for employers, the United States Supreme Court held that, under the Federal Arbitration Act, an arbitration agreement can prohibit an individual from commencing or participating in a class action. The California Supreme Court had established a rule that an employment arbitration agreement was not enforceable if it waived an individual’s right to file a class action. The U.S. Supreme Court, in a 5-4 decision, held that state laws cannot interfere with an arbitration agreement’s elimination of the class action mechanism to resolve disputes. Employers can use this ruling to essentially eliminate one of the biggest litigation threats facing their business – the wage-and-hour class action.
What the Supreme Court Did
In ATT Mobility LLC v. Concepcion, individuals entered into a cellular phone contract with AT&T. That agreement "provided for arbitration of all disputes between the parties, but required that claims be brought in the parties’ ‘individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.’” Consumers of AT&T filed a class action in court, alleging false advertising and fraud by charging sales tax on phones it advertised as free.
When AT&T attempted to compel arbitration of the individual plaintiff's claims, the district court struck down the agreement as unconscionable because it barred class actions. The trial court cited a long line of California precedent that squarely held such arbitration agreements to be unconscionable, and hence unenforceable, even under the Federal Arbitration Act ("FAA"). The Ninth Circuit affirmed.

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