Waiving employee class and collective action lawsuits in the workplace

Employers hoping to avoid employees’ costly class action lawsuits under state and federal antidiscrimination statutes, as well as collective actions for minimum and overtime wages, should carefully consider the Supreme Court’s recent American Express decision.

In the case of American Express Company v. Italian Colors Restaurant, the Court upheld the enforceability of a contract provision requiring arbitration of disputes, and also waiving the right to litigate or arbitrate claims on a class action basis on behalf of multiple claimants. The case, which began with a lawsuit filed in New York City in 2003, was decided by the U.S. Supreme Court on June 20 by a vote of  5-3. Justice Sonia Sotomayor recused herself.

Italian Colors, a small Oakland, California, neighborhood bistro in the city’s Montclair district, and a group of other merchants who accept American Ex­press credit and debit cards for customer payments, had filed a class action lawsuit against AmEx for alleged violations of the federal antitrust laws.  The merchants argued that American Express used its monopoly power to force the merchants to ac­cept its cards from customers at rates approximately 30% higher than the fees charged by competing credit cards.

American Express argued that the dispute had to be resolved by arbitration, and that each aggrieved merchant had to assert its claim on an individual basis and not through a class action.  That position was based on a 1999 contract signed by the merchants.  The AmEx “Card Acceptance Agreement” included a mandatory arbitration provision stating, in part, that:

Claim includes claims of every kind and nature including, but not limited to, initial claims, counterclaims, cross-claims and third-party claims and claims based upon contract, tort, intentional tort, statutes, regulations, common law and equity. … YOU [the merchant] WILL NOT HAVE THE RIGHT TO PARTICIPATE IN A REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION.  … There shall be no right or authority for any Claims to be arbitrated on a class action basis or on any basis involving Claims brought in a purported representative capacity on behalf of the general public, other establishments which accept the Card (Service Establishments), or other persons or entities similarly situated. Furthermore, Claims brought by or against a Service Establishment may not be joined or consolidated in the arbitration with Claims brought by or against any other Service Establishment(s), unless otherwise agreed to in writing by all parties.

In short, the AmEx mandatory arbitration agreement not only precluded a merchant from bringing an individual or class action lawsuit in court, it also precluded the merchant from having any claim arbitrated on anything other than an individual basis.

In an opinion written by Justice Antonin Scalia, the Court ruled in favor of American Express.  Courts must “rigorously enforce” arbitration agreements according to their terms, Scalia concluded. That principle applies even if the claimant’s cost for individually litigating or arbitrating his or her claim is prohibitively high and exceeds the potential recovery, and thus makes it impracticable to go it alone without joining with others,

The American Express decision reaffirmed the Court’s historical inclination to uphold the validity of arbitration agreements, as it had recently done in 2011 in the case of AT & T Mobility LLC v. Concepcion. There the Court preempted a 2007 California state supreme court decision that prohibited the enforcement of most class action waivers as “unconscionable”. The California decision, Gentry v. Superior Court, had involved a class action brought by employees who claimed that they had been unlawfully denied overtime pay. Subsequent California court decisions have concluded that the Concepcion doctrine also applies to workplace disputes because in that decision the Supreme Court “made no exception for employment-related disputes.”

While the American Express and Concepcion decisions were not employment disputes, in Gilmer v. Interstate/Johnson Lane Corp., the Court had previously enforced, in 1991, an arbitration agreement against a fired 62-year-old employee claiming workplace age discrimination against him. “Mere inequality in bargaining power … is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context,” the Court stated then.  Notably, the statute at issue there, the federal Age Discrimination in Employment Act of 1967, ex­pressly permits collective actions.

It must be noted that an important federal government administrative agency, the National Labor Relations Board, ruled in January of 2012 that a workplace agreement that waives an employee’s right to file joint, class, or collective claims concerning the terms and conditions of employment in any forum is unenforceable because violates the  employee’s federal right to engage in “concerted action”.

In D.R. Horton, Inc. and Cuda, the Board held that such agreements violate employee rights under the National Labor Relations Act. The provision at issue there provided in relevant part that: (1) all disputes and claims relating to the employee’s employment with the employer will be determined exclusively by final and binding arbitration; (2) the arbitrator may hear only the employee’s individual claims and does not have the authority “to fashion a proceeding as a class or collective action”; and (3) the employee waives the right to file a lawsuit or other civil proceeding relating to the employee’s employment with the employer. The status of this decision, which has been widely criticized, is not altogether clear, because only two of the five-member Board ruled, calling into question whether the decision will stand absent a quorum.

Given the marked trend in the Supreme Court’s jurisprudence in favor of arbitration and class action waivers, employers should consider having their existing as well as new employees sign agreements requiring them to arbitrate any claims arising from the employment relationship, and waiving the right to bring such claims on a class or collective action basis. This can be done through the employment application or a later document signed at the time a job offer is extended, or after employment has already commenced. While the enforceability of such class action waiver provisions has not been specifically decided by the Supreme Court in the employment context, the Court’s recent decisions point to their likely enforceability in a future case.