• Home
  • News
  • U.S. Supreme Court Rules in AT&T Mobility LLC v. Concepcion

News Details

U.S. Supreme Court Rules in AT&T Mobility LLC v. Concepcion

The United States Supreme Court recently ruled in AT&T Mobility LLC v. Concepcion (1) that companies can enforce prohibitions on class-wide arbitrations in their consumer contracts and (2) that the California Supreme Court's prior ruling in Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005)—that limitations on consumers' right to engage in class-wide arbitration are unconscionable—is preempted by the Federal Arbitration Act ("FAA"). You can access the entire opinion by clicking AT&T Mobility LLC v. Concepcion.

Concepcion is good news for California employers, since it may pave the way for companies to avoid costly and burdensome class action lawsuits with their employees. In Concepcion, the plaintiffs filed a class action lawsuit in federal court against AT&T, alleging false advertising and fraud for AT&T charging sales tax on phones advertised as free. In a 5-4 decision, the Court held that arbitration agreements in standard form contracts that waive the right to pursue a class action are enforceable, and that the FAA preempts the Discover Bank decision. Specifically, the Court held that the Discover Bank rule interferes with arbitration in a manner inconsistent with the FAA's purpose because it allows consumers to insist upon class-wide arbitration. According to the Court, class-wide arbitration, unless consensual, sacrifices arbitration's informality, slows down the process, and makes it more costly. There is also little incentive for defendants to arbitrate class-wide claims because class actions impose significant risks and arbitrations are poorly suited to resolve such high stake matters (e.g., it allows errors in decisions to go unnoticed, arbitrators may not be sufficiently familiar within certification principles, etc.).

Historically, employers in California had always faced an uphill battle when arguing that employment arbitration agreements could prohibit class-wide arbitration of claims. But the legal landscape has changed. The first indication that the United States Supreme Court might overrule the California Supreme Court came last year when it issued its decision in Stolt-Nielson v. AnimalFeeds Int'l Corp. Stolt-Nielsen involved a commercial contract which was "silent" on the question of whether class-wide arbitration could be conducted. In a decision by Justice Scalia, the United States Supreme Court held that class-wide arbitration was not authorized unless the parties had expressly authorized it in the agreement. This presented an apparent conflict with the Discover Bank decision, which the United States Supreme Court resolved in Concepcion. In light of the Concepcion decision, employers with arbitration agreements should consider amending them to (1) include explicit class action waivers to potentially limit exposure to wage and hour, discrimination, and other employment claims and/or (2) clarify the existing intent not to authorize class wide arbitration. Employers who do not have employment arbitration agreements now have a serious reason to consider them.

If you are considering adding a class action waiver to your arbitration agreements or want to begin implementing arbitration agreements with your California employees, there are other factors to consider before taking such a step. For instance, dispute resolution provisions in employment contracts that do not provide due process and essential fairness to employees may not be enforceable. See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 90-91; Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076. Indeed, it is still the law in California that arbitration agreements that are "permeated" by unconscionability are unenforceable. Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th at 122; see Legislative Comm. Comment to Civ.C. § 1670.5; see also Civ.C. § 1598 (entire contract void where its single object is unlawful, wholly impossible of performance or wholly unascertainable); and Ferguson v. Countrywide Credit Indus., Inc. (9th Cir. 2002) 298 F3d 778, 788 (applying CA law) (lack of mutuality regarding type of claims arbitrable, and unconscionable fee and discovery provisions so permeated agreement as to prevent severance); Lhotka v. Geographic Expeditions, Inc. (2010) 181 Cal.App.4th 816, 826 Among other things, this means that although class action waivers may no longer invalidate an arbitration agreement, such clauses may still be unenforceable if they are completely one-sided, compelling the employee, but not the employer, to arbitrate all claims. O'Hare v. Municipal Resource Consultants (2003) 107 Cal.App.4th 267, 279. Flores v. Transamerica HomeFirst, Inc. (2001) 93 Cal.App.4th 846, 857-858.

Where arbitration agreements are required as a condition of employment, a challenge may also lie if the plan fails to provide for such essential features as: (1) a neutral arbitrator; (2) adequate discovery; (3) the right to independent representation; (4) a range of remedies equal to those available in court; (5) a written arbitration award that includes essential findings and conclusions to permit limited judicial review; (5) access to arbitrators familiar with the relevant area of law; and (6) affordable access to the arbitration system with limits on costs or alternatively payment in full by the employer for the arbitration (e.g., in arbitration of FEHA claims, the employer must pay costs unique to the arbitration). See Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th at 102; Pearson Dental Supplies, Inc. v. Sup.Ct. (Turcios) (2010) 48 Cal.4th 665, 677; see also Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 422 ($50 arbitration cost to employee acceptable). The requirement regarding payment of costs has further been extended to claims involving the enforcement of rights under statutes enacted for a public policy reason, Mercuro v. Sup.Ct. (Countrywide Secur. Corp.) (2002) 96 Cal.App.4th 167, 180 (Armendariz "essential fairness" requirements applied to employee's claims under FEHA and Lab.C. §§ 230.8 & 970); Gentry v. Sup.Ct. (Circuit City Stores, Inc.) (2007) 42 Cal.4th 443, 456 (statutory right under Lab.C. § 1194 to overtime pay is nonwaivable), as well as nonstatutory public policy claims (e.g., wrongful termination in violation of public policy), see Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076 (The Armendariz essential fairness requirements were based on the premise that certain statutory rights are nonwaivable. This same rationale applies to nonstatutory public policy claims: "(A)n employment agreement that required employees to waive claims that they were terminated in violation of public policy would itself be contrary to public policy.").

Employers may further insulate employment arbitration clauses from unconscionability challenges by providing new employees with: (1) materials clearly describing the dispute resolution program, rules and procedures (which may include a videotape presentation); (2) an opt-out form for which a receipt is signed; and (3) a clear explanation of applicable deadlines. See Circuit City Stores, Inc. v. Ahmed (9th Cir. 2002) 283 F3d 1198, 1199—employee had meaningful opportunity to opt out of binding arbitration, so arbitration agreement not procedurally unconscionable (applying CA. law); compare Circuit City Stores, Inc. v. Mantor (9th Cir. 2003) 335 F3d 1101, 1106-1107 (collecting cases)—unconscionable binding arbitration agreement unenforceable despite opt-out form because employer insisted employee sign or forfeit future with company (no chance to negotiate terms).

A number of organizations involved in labor and employment law (such as JAMS and AAA) have developed a "Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising out of the Employment Relationship." The Protocol is designed to set minimum due process standards in arbitration of employment disputes involving statutory rights. It defines the right to representation; adequate prehearing access to information; expertise, training and qualification of neutral arbitrators; scope of remedies; a reasoned award; allocation of fees and costs of the proceeding; and scope of review.

The foregoing legal alert is intended for general information purposes only.

If you would like to discuss your company's specific situation, please contact Drew R. Hansen at 714.549.6112 or email dhansen@tocounsel.com.