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Is Supreme Court “Waiving” Goodbye to Class Actions?

At almost every opportunity in recent years, the Supreme Court has endorsed arbitration as a means of resolving disputes. The Court has also issued rulings making it more difficult for plaintiffs to bring class actions. In a decision handed down on June 20, 2013, the high court did both. The case, called American Express v. Italian Colors Restaurant, re-affirmed that the Federal Arbitration Act allows parties to expressly waive class treatment and thereby limit arbitrations to individual disputes.

In doing so, a majority of the justices (over a vehement dissent) torpedoed one of the strategies employed by plaintiffs to avoid the Court’s 2011 decision in AT&T v. Concepcion, which held that the FAA pre-empts state laws invalidating class waivers. Namely, claimants argued that class waivers should be voided in cases where the cost to pursue an individual claim far exceeds the total potential recovery. In other words, if individual case treatment is not economically feasible, the argument went, the contractual bar to class treatment should be lifted. Writing for the majority in Italian Colors, Justice Scalia firmly rejected that tack, because the federal “antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”

Undoubtedly, this ruling will reverberate in other areas, including wage-and-hour litigation. Granted, there remains a battle over the NLRB’s stance that employers commit an unfair labor practice when they include class waivers in arbitration agreements. Federal appellate courts (including the 8th Circuit), however, have thus far disagreed with that position, and the issue is likely destined for the U.S. Supreme Court too. Many companies are not waiting for that final word, and instead are including class waivers in their arbitration agreements now. Given the recent trend, their confidence is understandable.

Even still, we anticipate that plaintiffs will continue to challenge arbitration agreements, likely focusing their challenges on other grounds. Therefore, companies are encouraged to get legal counsel on these issues. If you have questions about your arbitration agreement, or need assistance evaluating or implementing an arbitration program, please contact one of our specialists at Spencer Fane.