Employers now may be permitted to include clauses known as class-action-waivers in arbitration agreements with employees, according to a recent decision of the U.S. Supreme Court.  Valid class-action-waivers restrict employees who wish to pursue legal recourse against employers to do so only through individual arbitrations and not as a member of a class action filed in court.  Simply put, these provisions require an employee to waive his or her right to participate in class-action litigation against the employer.  Where such waivers are allowed, employers may reduce substantially their exposure to costly class actions; for example, those alleging wage-and-hour or meal-and-rest-period violations.

In a case called AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court decided on April 27, 2011, that businesses may enforce class-action-waivers in arbitration agreements with consumers.  Explaining that the Federal Arbitration Act cannot be trumped by state law, the high court rejected a ruling by the California Supreme Court barring such provisions in agreements between banks and their customers.  The California Supreme Court found such clauses especially unacceptable where the arbitration agreement does not afford or impose class-based arbitration procedures that often are problematic for defendants.  Lower courts in the Golden State routinely invalidate class-action-waivers in employment contracts on the basis of that now-questionable ruling by the California Supreme Court.

Although the U.S. and California Supreme Court cases both involved different types of consumer contracts, and even though the holding in AT&T Mobility LLC v. Concepcion was not unanimous (it was a 5-4 split), employers have a strong argument that the majority decision of the nation’s highest court applies to employment contracts in California.  If that argument were to prevail, employers could win the early dismissal of class actions by enforcing such waivers in arbitration agreements.  At the same time, employers would not have to endure the problems associated with class-based arbitration procedures when pushing such cases out of the courts and into the arbitration realm.

Accordingly, employers in California would be well advised to consider the advantages and disadvantages of drafting or revising arbitration contracts to include such waivers, and to consult with legal counsel about the risks and benefits of adopting or operating without such agreements.