Recently, the Supreme Court of the United States issued an important decision regarding the enforceability of arbitration agreements, and although the case examined the use of those agreements in the consumer context, it has far-reaching implications for their use of in the employment context.

In AT&T Mobility LLC v. Concepcion, the Supreme Court considered whether the Federal Arbitration Act (“FAA”) prohibits states from conditioning the enforceability of some arbitration agreements on the availability of class-wide arbitration.  Put another way, it examined whether an entity can restrict arbitration rights to solely an individual basis and, in the process, eliminate being subjected to class arbitration.

Like millions of Americans, Vincent and Liza Concepcion entered into an agreement for the sale and service of cellular phones with AT&T Mobility LLC (“AT&T).  The agreement between the parties provided for arbitration of all disputes; it further required that all claims be brought in the parties’ “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.”

After entering into their contract, Mr. and Mrs. Concepcion sued AT&T because they were charged sales tax on their phones, which they believed should have been provided at no charge (including no sales tax).  Their lawsuit was then consolidated with a class action against AT&T alleging false advertising and fraud.  AT&T moved to compel arbitration with the Concepcions based on the arbitration agreement in their service contract.  The district court denied AT&T’s motion on the grounds that the arbitration provision was unconscionable under California law because it did not allow for class-wide proceedings.

AT&T appealed the lower court’s decision and argued that the FAA pre-empts the California rule.  The case ultimately made its way to the United States Supreme Court, and it agreed with AT&T.  According to the Supreme Court, the California rule was pre-empted by the FAA because it is an obstacle to the statute.  In its decision, the Court reminded us that the FAA codifies a liberal federal policy favoring arbitration and exists to ensure that private arbitration agreements are enforced as they are written.

This decision has important implications for employers.  Even though class actions are not as frequent in the employment arena as they are in consumer transactions, they still occur in several contexts.  In particular, class actions (or collective actions as they are referred to by the Fair Labor Standards Act) alleging wage-and-hour violations are very common.  Plaintiffs’ attorneys prefer to bring class proceedings because the damages an individual person may be owed, such as overtime compensation, could be relatively low and not worthwhile for the attorney to pursue.  If the claims of many employees are aggregated, then the damages may be considerable.  The attorney’s fees can also be significant in class proceedings.

Put simply, the AT&T Mobility decision gives employers a strong argument that they can use arbitration agreements to prevent employees from bringing class or collective actions, and employers should meaningfully consider imposing such restrictions in the arbitration clauses they use, when possible.  Doing so will, among other things, avoid the slow and costly nature of class proceedings, and lower the risk by instead dealing with an employee on a case-by-case – rather than class – basis.

Joseph Leonoro concentrates his practice in matters involving labor and employment law.
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