The U.S. Supreme Court Upholds Class Arbitration Waivers and Arbitration Agreements
The U.S. Supreme Court Upholds Class Arbitration Waivers and Arbitration Agreements

Over the last three years, the Supreme Court has issued a number of opinions that have given strength to arbitration agreements. The Court has reiterated that the Federal Arbitration Act (“FAA”) places arbitration agreements on equal footing with other contracts. As a result, corporations will be better able to use arbitration to safeguard against costly and lengthy individual and class actions. On August 5, 2011, I addressed these developments and their impact on corporate clients in the “Class Action Update” presented at the Network of Trial Law Firms “Litigation Management in a New York Minute” CLE event in New York City. There are several strategies that corporate clients should consider in order to capitalize on the Supreme Court’s leaning in favor of arbitration.

In particular, the following recent Supreme Court cases have bolstered arbitration in the employment and commercial contexts by permitting binding arbitration of statutory claims in collective bargaining agreements, permitting parties to give arbitrators the power to determine unconscionability of arbitration agreements, and permitting parties to preclude class arbitration of commercial and consumer claims:

  • In 14 Penn Plaza LLC v. Pyett, 129 S.Ct. 1456 (2009), the Court ruled that a collective bargaining agreement which required union employees to resolve all employment discrimination claims through binding arbitration was enforceable with respect to the Age Discrimination in Employment Act claims at issue. The Court clarified that even in a collective bargaining agreement, an arbitration provision that explicitly requires arbitration of a type of dispute will be enforceable unless a statute precludes arbitration of such claims. This ruling has been seen by some as “undoing” what the Court established in its 1974 opinion in Alexander v. Gardner-Denver Co., 94 S.Ct. 1011 (1974); however, the Court views Pyett as consistent with its prior rulings. See Pyett, 129 S.Ct. at 1461, 1464-66.
  • In Rent-A-Center West, Inc. v. Jackson, 130 S.Ct. 2771 (2010), the Court decided that an arbitration agreement provision which explicitly delegated to the arbitrator (and not the courts) the power to determine whether the arbitration agreement was unconscionable must be honored. The arbitration agreement in Jackson required the arbitration of all disputes arising out of Jackson's employment with Rent-A-Center, including discrimination claims and claims for any violation of federal law. See Jackson, 130 S.Ct. at 2775, 2779-82.
  • In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758 (2010), the Court took steps to preclude class arbitrations by prohibiting arbitrators from ordering class arbitration where the arbitration agreement is silent on the class issue. The Court reasoned that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” The claims at issue were antitrust claims. See Stolt-Nielsen, 130 S.Ct. at 1765-68, 1775-77.
  • In AT&T Mobility LLC v. Concepcion et ux, 131 S.Ct. 1740 (2011), the Court held that the FAA preempts judicial decisions preventing the enforcement of class arbitration waivers agreed to by consumers, and upheld the enforcement of an arbitration agreement in a cell phone contract which included a waiver of class arbitration. The Court’s ruling in Concepcion has been considered by some to be the “death knell” of consumer class actions. For example, see the discussion in the Wall Street Journal’s blog post regarding Concepcion: There is, however, a significant possibility that Concepcion will not preclude class arbitrations in all situations, and a case-by-case analysis is of course always required.

In light of these rulings, corporations can strategize with counsel to strengthen contractual arbitration clauses for employment, consumer, antitrust, and other commercial claims. Corporations should consider taking the following steps, among others, with the advice of counsel:

  • Revising and drafting future employment and collective bargaining agreements to require binding arbitration of some employment discrimination and other federal claims that may be applicable to their lines of business.
  • Including provisions that explicitly delegate to the arbitrator decisions regarding unconscionability of the arbitration agreement and whether the agreement is enforceable.
  • Drafting or revising commercial, consumer and employment contracts, and collective bargaining agreements, to include binding arbitration provisions that preclude class arbitration.

The nuances of the laws applicable to different lines of business (e.g., retail or manufacturing vs. mortgage banking or insurance) may alter the impact of the Court’s rulings discussed above. Therefore, corporations should be sure to consult with counsel about implementing these strategies.

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