U. S. Supreme Court-A Favorable Decision For California Employers

Yesterday, the U. S. Supreme Court handed down a decision (AT&T Mobility v. Concepcion) reversing the Ninth Circuit and holding that the Federal Arbitration Act (FAA) preempts California law insofar as the law operates to interfere with the purpose of the FAA, which is to promote arbitration as a streamlined procedure for resolving disputes.   The Court held that the operation of California law to void the class action waiver in AT&T’s contract nullified the parties’ agreement to arbitrate and which is inconsistent with the FAA.  The Court held that the FAA requires arbitration agreements to be enforced according to their terms and on the same footing as any other type of contract.  The Court explained that defenses to enforceability (fraud, duress, unconscionability) still exist but may not be applied in a manner so as to discriminate against the type of contract at hand.  The Court suggested that California courts have applied the doctrine of “unconscionability” to disfavor arbitration agreements and avoid their enforcement, contrary to the FAA.

The Court further explained that the FAA permits parties to agree to limit the types of issues to be arbitrated, including limiting class or collective claims, to further the arbitral goal of providing an efficient, streamlined procedure for resolution of disputes.  The Court further stated that any rule, like California’s, requiring the availability of class wide arbitration interferes with fundamental attributes of arbitration and therefore creates a scheme inconsistent with the FAA.

So what does this mean for California employers?  The AT&T case is not an employment case and did not involve the enforceability of a class action waiver in an employment arbitration agreement.  That said, the Court’s reasoning should apply equally to the enforceability of class action waivers in employment arbitration agreements.  This will no doubt be more definitively determined in other cases in the near future.  In the meantime, employers continuing to battle the cottage industry of wage and hour class actions in California should certainly revisit their arbitration agreements and ensure that a class action waiver is included.  These provisions stand much greater likelihood of enforceability in the wake of the AT&T decision.  Employers are cautioned, however, that the AT&T case does NOT hold that all California unconscionability standards relating to arbitration agreements are preempted by the FAA.  It is likely that the scope of preemption will be the subject of much litigation to come, with the focus being whether the standards are applied or operate in a manner that frustrates the purpose of the FAA.  For now, employers should continue to ensure that their arbitration agreements meet general standards of fairness for employment disputes, generally prescribed by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services.