On April 27, the U.S. Supreme Court decided that the Federal Arbitration Act (“FAA”) preempts rules created by states, such as California, that classify most class action arbitration waivers in consumer contracts as unconscionable. The Court’s 5-4 decision in AT&T Mobility LLC v. Concepcion, 2011 WL 1561956 (U.S. Apr. 27, 2011) could signal big changes for consumer − and potentially wage and hour − class action litigation.
The case began when AT&T customers Vincent and Liza Concepcion purchased wireless phone service, which advertised the provision of free phones. The Concepcions were not charged for the phones, but they were charged approximately $30 in sales tax. In March 2006, the Concepcions filed a complaint against AT&T in the United States District Court for the Southern District of California. The complaint was later consolidated with a putative class action alleging that AT&T had engaged in false advertising and fraud by charging sales tax for the “free” phones.
The Concepcions’ contract with AT&T contained a standard arbitration provision, which required the Conceptions to pursue their claims against AT&T through arbitration in an individual capacity rather than through a lawsuit as a member of a putative class. Accordingly, AT&T moved for arbitration in accordance with the contract, but the district court denied AT&T’s motion, relying on Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), a California Supreme Court decision that held class action waivers in certain consumer contracts were unenforceable as a matter of public policy. This California law was overturned by the Concepcion ruling.
Writing for the Court, Justice Antonin Scalia said that permitting states to nullify arbitration agreements based on policy judgments frustrates the purpose of the FAA, which was enacted in 1925 “in response to widespread judicial hostility to arbitration agreements.” According to the Court, the FAA was designed to promote arbitration, under the belief that affording parties discretion to design their own arbitration processes − including limiting the availability of class arbitration − advances efficiency and streamlines the resolution of disputes.
While AT&T v. Concepcion was decided in the context of a consumer contract and not an employment agreement, employers should be aware that the ramifications of this case could extend to the employment sphere. Employers should examine their arbitration agreements to ensure that a class action waiver is included, as these types of provisions are more likely to be enforced in light of the Court’s decision.