The Evolution Continues: Supreme Court Upholds Class Arbitration Waivers

The landscape of arbitration agreements and their effect on class action matters has been an area of significant evolution in recent years. Indeed, just two weeks ago, we reported on the latest Supreme Court decision that seemed to put a damper on the belief that arbitration agreements might provide a helpful avenue to stemming the tidal wave of employment and wage and hour class actions that has washed over many employers in recent years. And then, at the end of its fall 2012 term, the Supreme Court has now reenergized that hope with its decision in American Express Co. v. Italian Colors Restaurant, where the Court ruled that express class action waivers are enforceable, even where precluding claims from proceeding on a class basis seems to make them economically non-viable.

The “high” cost of arbitration is an oft-relied upon argument put forth by individual plaintiffs when seeking to invalidate an arbitration clause mandating either individual litigation or arbitration, as opposed to class arbitration, of their claims. Not persuaded by this claim, in American Express, the Court ruled that merchants seeking to sue American Express were bound by the terms of their agreements to arbitrate their claims on an individual, non-class basis. The Court reached this conclusion despite the merchants’ arguments that the cost of pursing the antitrust claims on an individual basis was “too high” to vindicate their rights, and the most any could hope to recover in damages is $38,549, far less than the estimated million dollar price tag it would take to gather the experts and evidence to prove their case. The merchants thus claimed that these cost differentials essentially meant they could not “vindicate their statutory rights” and should not be forced to arbitrate on an individual basis.

The Court was not convinced, and in its opinion, it stated, “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” Rather, “courts must ‘rigorously enforce’ arbitration agreements according to their terms.” This is so, the Court further explained, even in the face of “…the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”

American Express represents an important victory for those seeking to enforce arbitration clauses with class action waivers, which a trending number of employers have adopted since the Supreme Court’s decision in AT&T Mobility v. Concepcion. Questions nevertheless remain as to whether the Supreme Court, and lower courts, would view claims other than antitrust claims in a different light. Would a court be more willing to look at the cost for plaintiffs seeking to recover for unpaid wages or discrimination? As those questions get fleshed out, in the interim, the Supreme Court’s most recent decision is certainly a “win” in terms of employers fighting against cost challenges to arbitration clauses and using such clauses as a potential mechanism to fight off costly class action litigation.