Landmark Supreme Court Decision Likely Permits Employers To Require Employees To Pursue Claims Individually And Not By Way Of Class Action Lawsuits

As we previously reported here, a report issued by the Judicial Council of California, Administrative Office of the Courts, Office of Court Research, shows that employment cases were the most frequently filed class actions, representing 29.3% of the class actions filed and that over half of the employment cases filed alleged violations of Labor Code provisions governing payment of wages, rest and meal periods, and related claims. This is consistent with our experience representing numerous employers against such class action lawsuits.

A recent decision by the Supreme Court of the United States has the potential to change all that for many if not most California employers. In AT&T Mobility LLC v. Vincent Concepcion, the Supreme Court of the United States reversed the decision of the United States Court of Appeals for the Ninth Circuit holding (1) that an arbitration agreement between AT&T Mobility LLC and cell phone customers requiring that customers bring any claims in their "'individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding'" is unconscionable and therefore unenforceable and (2) that the basis for the finding of unconscionability "was not preempted by the [Federal Arbitration Act ("FAA")]. In other words, the Supreme Court held that arbitration agreements are generally enforceable according to their terms under the FAA, and neither California courts nor other courts can evade the FAA merely by declaring an arbitration agreement to be "unconscionable" in whole or in part.

Although the Supreme Court's landmark ruling involved a consumer contract, we think the holding and the reasoning of the decision applies with equal force to arbitration agreements between employers and employees.

Unfortunately, not all employers will be able to take advantage of this landmark decision. The FAA expressly exempts from its reach "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce," which the Supreme Court held in Circuit City Stores, Inc., v. Saint Clair Adams applies to and is limited to "transportation workers, defined, for instance, as those workers 'actually engaged in the movement of goods in interstate commerce," such as truck drivers. In other words, the FAA cannot be used as a basis for requiring such employees to arbitrate employment claims on an individual basis and not by way of a class action lawsuit.

Also, and predictably, there are already moves afoot to unwind legislatively the effect of Supreme Court's ruling..The day the decision came down, United States Senators Al Franken (D-Minn.), of Saturday Night Live fame Richard Blumenthal (D-Conn.), and Representative Hank Johnson (D-Ga.) announced they will introduce legislation called the "Arbitration Fairness Act," which would eliminate "forced arbitration clauses in employment, consumer, and civil rights cases. . . ."  Whether such moves will prove to be successful given the present constitution of the Congress and the present political and economic climate remain to be seen.

In any event, based on this landmark ruling and its potential to effectively immunize many employers against class action lawsuits by current or former employees, we think employers should promptly consult competent employment law counsel about either revising existing employer-employee arbitration agreements to require arbitration of employment claims on an individual basis and not on a class basis or about requesting or requiring employees to now enter into such arbitration agreements.

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