April 24, 2014

Recent Supreme Court Rulings Suggest a Carefully Crafted Class Action Waiver May Be Close to a 'Silver Bullet' Against Employment Class Actions

As the Supreme Court winds down its current term with the usual flurry of decisions, employers should make sure not to ignore two decisions on arbitration: American Express Co. v. Italian Colors Restaurant, issued June 20, and Oxford Health Plans LLC v. Sutter, issued June 10. Neither is an employment case, but particularly taken together, they have critical importance for employers, strongly suggesting that properly crafted and updated arbitration clauses can be a powerful tool for employers looking to insulate themselves from employment class actions.

Oxford Health involved a contract between a health insurance company and physicians regarding rates of reimbursement for certain health care services to members of the insurance company's network. The contract included an arbitration clause that did not expressly address class actions, but did broadly route "any dispute arising under th[e] Agreement" into arbitration. A group of physicians sought to bring a class arbitration, and the Supreme Court unanimously affirmed the arbitrator's decision that the contract permitted class arbitrations. The Court noted that the judicial review for an arbitrator's decision was quite narrow and that since the parties had agreed to permit the arbitrator to decide the scope of the arbitration, his ruling that a class arbitration was permitted should be upheld. Thus, Oxford Health emphasizes the critical importance of careful drafting, since general arbitration language could be read to permit class arbitrations. Employers with general arbitration clauses should have them reviewed to ensure that the subject of class actions is expressly addressed, or they risk having their own arbitration clauses used against them to force class action arbitrations.

The importance of such drafting was highlighted just a few days later when Court returned to the subject of class actions and arbitrations in American Express. In that case, which was an antitrust claim brought by putative class of merchants who accepted American Express cards, the Court ruled 5-3, with Justice Sotomayor not participating, that an arbitration clause that compelled arbitration of all disputes but prevented any arbitration "on a class action basis" was enforceable under the Federal Arbitration Act. The merchants had argued that the bar of class actions would prevent vindication of the underlying antitrust claims since the cost of individual arbitration exceeded the potential recovery. The Court majority emphatically rejected this argument, ruling over a strong dissent that the antitrust laws "do not guarantee an affordable procedural path to the vindication of every claim."

Particularly taken together, Oxford Health and American Express suggest that a well-crafted arbitration clause can be a powerful tool and may even help insulate employers from class actions entirely. While American Expressinvolved antitrust, not employment, claims, it strongly rejects many of the precise arguments that have been used by employees in employment cases to attempt to circumvent class action waivers. The issue is far from settled, particularly in the wage-hour context (where statutory provisions in the Fair Labor Standards Act have been relied upon by employees and courts as a basis to reject class action waivers). Nonetheless, American Expresscontinues the growing trend of court decisions approving class action waivers. Thus, employers looking for ways to limit exposure to employment class actions should give careful consideration to implementing an arbitration program. But in doing so, careful drafting is critical, as is active monitoring of ongoing developments in what remains a fluid area.

© 2014 Schiff Hardin LLP

About the Author

Steven Catlett, Employment Litigation Attorney, Schiff Hardin, Law Firm

Steven T. Catlett practices nationally in all phases of employment litigation. His experience ranges from single plaintiff to large, nationwide cases, and his particular focus is on defending class action and multiparty litigation in the wage-hour, discrimination and ERISA areas. Of special note, he has extensive experience and is one of the leading national practitioners in all manner of wage-hour class or collective action litigation, having served as lead counsel in dozens of cases covering the full range of substantive wage-hour issues across a wide variety of industries.


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