THE ARBITRATION AGREEMENT PRECLUDING CLASS ACTION LITIGATION: THE REPORT OF ITS DEMISE MAY HAVE BEEN PREMATURE (MAYBE)

For the majority of our collective legal memory, arbitration agreements – including those presented to prospective or current employees – have been under attack by both the plaintiff’s bar and, through its rulings, our court system.  Legal terms like “contract of adhesion” and “unconscionability” are often thrown about to scare employers (and their lawyers) away from the thought of using arbitration agreements in the workplace.  However, in a decision recently handed down by the Supreme Court of Appeals of West Virginia, the forbidden words of “adhesion” and “unconscionability” may not be enough to prevent the use of arbitration agreements.  This particular ruling will be of interest to employers seeking to steer clear of the national trend of increased (and expensive) class action wage and hour litigation.

In State of West Virginia ex rel. AT&T Mobility, LLC v. Wilson, 2010 WL 4273236 (W. Va. October 28, 2010), the West Virginia Supreme Court of Appeals clarified some apparent misconceptions about the treatment of arbitration agreements in West Virginia.  Particularly, the Court announced that, standing alone, the prohibition of class action relief does not render an arbitration agreement unenforceable.  That specific holding presents some options for employers to consider in light of the constant threat of class action wage and hour litigation.  Some discussion of the AT&T decision and the reasoning for it may be helpful.  In the AT&T case, an AT&T customer failed to make timely payments and, pursuant to the terms of her service contract, her service was cancelled and AT&T assessed an early termination fee.  Eventually, litigation ensued with a variety of claims made by all of the parties.  When the former customer sued AT&T, AT&T sought to enforce the terms of the arbitration agreement which was contained in the customer’s service agreement.  (Of note, after the customer initially opened her account, AT&T unilaterally changed the terms of that arbitration agreement with some “customer friendly” modifications including AT&T footing the bill for arbitration, no restriction on remedies such as punitive damages and attorney’s fees, and a $10,000 minimum award if the customer was awarded more than AT&T’s last settlement offer.)  After much procedural wrangling, the issue of whether the customer’s claims should be referred to arbitration was before the circuit court.  The court ruled the arbitration agreement unenforceable given its requirement that “individual claims” be pursued and not as part of any class action.  From there, AT&T appealed.

As noted, the Supreme Court reversed the circuit court and held that the prohibition of class action litigation alone could not render an arbitration agreement void.  The Court reiterated and emphasized that arbitration agreements and their enforceability must be analyzed on a case-by-case basis with focus on the particular facts of each case.  The Court likewise cautioned against the belief that an arbitration agreement is unenforceable solely because an agreement is a so-called “contract of adhesion.”  Instead, a court is required to analyze the specific agreement at issue with particular attention to the relative position of the parties, their bargaining power, whether any meaningful alternatives exist, and identification of specific unfair terms in the contract.  In assessing the specific contractual provisions at issue, the Supreme Court mandates two additional inquiries:  (1) whether the contract prevents a potential plaintiff/claimant from “vindicating” his or her rights, and (2) whether the costs of the arbitration are unreasonably burdensome.  In reversing the circuit court, the Supreme Court remanded the case for analysis under these factors – without exclusive focus on the class action provision.

Although this decision addressed a dispute between a dissatisfied mobile service customer and a dissatisfied mobile service provider, the points of law do have application to the workplace.  First, the Court went to great lengths to dispel any misconception that arbitration agreements presented to employees without “room for negotiation” (or the so-called “contract of adhesion” for the plaintiff’s bar) are unenforceable from the outset.  Likewise for any arbitration agreements that prohibit class action (as opposed to individual claims) litigation.  Of course, the proposed arbitration agreement must, overall, contain a modicum of fairness to pass muster.  AT&T provided some guidance on what factors may be acceptable to West Virginia courts, such as allowing for punitive damage and attorney fee awards, and covering the cost of the arbitration.  Practically speaking, the AT&T decision does provide reason for employers to consider using arbitration agreements, even if only to provide some protection from costly class action litigation.

Tom Kleeh concentrates his practice in labor and employment law. Mr. Kleeh has experience defending employers in protected class litigation and claims in discrimination claims against employers based upon age, race, sex, disability, religion and national origin as well as claims of sexual and other forms of unlawful harassment. He has defended claims for breach of contract, retaliatory discharge, defamation, invasion of privacy, and other employment-related torts.
 
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