• Arbitration Agreements Can Bar Class Action Lawsuits And Require Customers to Arbitrate Their Disputes Individually
  • March 24, 2015 | Author: Rosemary Orsini
  • Law Firm: Berenbaum Weinshienk PC - Denver Office
  • The United States Supreme Court's recent decision in AT&T Mobility LLC v. Concepcion increases the likelihood that consumers and employees alike will see a rise in the enforcement of class action waivers in arbitration agreements.

    In AT&T Mobility LLC v. Concepcion, the Concepcions signed a two-year contract for AT&T cellphone service. The Concepcions claimed that they were told the phones were free, but later were charged $30.22 by AT&T for "sales tax." They filed a lawsuit for false advertising and fraud against AT&T in federal court. The Concepcions' case and another similar case that had been filed against AT&T were consolidated as a class action.

    AT&T filed a motion to compel arbitration under the Concepcions' contract. The service contract between the Concepcions and AT&T provided for arbitration of all disputes and prohibited class action arbitration.

    Relying on a prior decision of the California Supreme Court, the California Federal District Court denied AT&T's motion to compel arbitration because it found the arbitration provision was unconscionable, based on the ban against arbitration of class actions in the service contract. The United States Court of Appeals for the Ninth Circuit agreed that the provision was unconscionable and affirmed the California District Court's decision. AT&T appealed the case to the United States Supreme Court.

    The U. S. Supreme Court reversed the Ninth Circuit and held that the Federal Arbitration Act pre-empts state contract law in determining the enforceability of an arbitration agreement that includes a ban against class action arbitrations. The Court stated "courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms."

    While this was not an employment case, its application to employment contracts cannot be overlooked. Many employment contracts today contain arbitration agreements, meaning that an employee agrees to arbitrate all disputes that may arise out of his or her employment.