July 25, 2014

U.S. Supreme Court Continues to Uphold Arbitration Agreements

After AT&T Mobility v. Concepcion, arbitration came back into style for many employers. While arbitration is far from perfect, the thought that employers could institute mandatory arbitration programs that greatly reduce the threat of class actions helps general counsel and Human Resources managers sleep better at night. A pair of recent U.S. Supreme Court decisions suggests that arbitration agreements are here to stay, but that careful drafting of those agreements is a must for employers that want to get the benefit of their bargains.

Mandatory Arbitration of Federal Statutory Claims Upheld

In American Express Co. v. Italian Colors Restaurant, the U.S. Supreme Court held that a class action waiver in arbitration agreements between the credit card company and several small businesses was enforceable and barred a proposed class action antitrust suit. The small businesses successfully argued in the court below that the class action waiver shouldn’t be enforced because the cost of litigating an antitrust suit against American Express, hundreds of thousands of dollars or more, far outweighed the $38,549 each business might recover if it won. The Supreme Court, however, disagreed, stating that neither the federal antitrust laws nor the Federal Rules of Civil Procedure prevented parties from agreeing to arbitrate all of their disputes on an individual basis, even if individual suits were not affordable.

The take-home lesson for employers? Federal statutory claims aren’t special. The Court’s landmark decision inConcepcion did not deal with a federal statute, leading some commentators to think that the Court might strike down class action waivers of federal statutory claims because federal statutes reflect important public policy objectives, such as the maintenance of minimum wages and the elimination of discrimination in employment. But because the Court declined to create such a carve-out for federal antitrust statutes, the Court likely won’t create one for federal employment statutes either.

The Arbitrator Messed Up — Now What?

Employers that want to funnel potential employment claims into arbitration, however, should be careful. In Oxford Health Plans LLC v. Sutter, the employer’s arbitration agreement did not specify whether class actions were prohibited, it merely said that the parties agreed to arbitrate all their disputes. The arbitrator concluded that that language allowed class action arbitration. The employer ultimately appealed to the U.S. Supreme Court, which hinted that it thought the arbitrator was dead wrong. Regardless, the Court refused to overturn the arbitrator’s decision because under the Federal Arbitration Act, as long as the arbitrator makes a good faith effort to interpret the parties’ contract, his interpretation is subject to very limited court review.

What’s an Employer to Do?

Employers should consider whether mandatory arbitration agreements are the right move for them. For many employers, eliminating the specter of class actions is worth it. But if a business’ exposure to a class action is low, it may not benefit much from a mandatory arbitration agreement. Additionally, employers should consider whether they are comfortable with a decision that’s worth all the marbles. Arbitration decisions are virtually unappealable, so employers need to be prepared to be stuck with bad decisions before rushing into arbitration.

Fortunately, employers have options in this area of the law. They don’t have to institute a mandatory arbitration program, and if they do, they have some flexibility when structuring it. Accordingly, employers should talk to their counsel to determine whether arbitration agreements might fit their business’ needs.


About the Author

Eric H. Rumbaugh Attorney Michael Best Friedrich LLP

Eric Rumbaugh is a partner and represents management in all areas of labor and employment law.  He represents management in employment matters in state and federal courts and in labor arbitration. He also regularly represents management in administrative proceedings, including proceedings involving EEOC, OFCCP, NLRB, state fair employment and civil rights agencies and other matters. He counsels management regarding employment policies and pre-litigation planning.  In addition, Mr. Rumbaugh is co-coordinator of Michael Best’s Trade Secret and Non-Competition Team.  In...


About the Author

Steven A. Nigh Michael Best Friedrich LLP

Steven Nigh is an attorney in the Labor and Employment Practice Group in the Milwaukee office.


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