SCOTUS UPDATE: Class ACtion Arbitration Waivers Valid

April 28, 2011

On In a bit of good news for employers, the United States Supreme Court on April 27, 2011 struck down a state law which prohibited arbitration agreement provisions waiving the right to participate in class action litigation. In AT&T Mobility LLC v. Concepcion, the Supreme Court considered the issue of whether parties can preclude class actions and class-arbitration by the terms of an arbitration agreement.


In 2002, Vincent and Liza Concepcion signed a two-year service contract with AT&T Mobility for wireless phone service. In exchange, they were provided two new cell phones “for free.” However, AT&T charged the couple sales tax for the full value of the phones. In the contract between the parties there was a clause requiring the Concepcions to arbitrate any disputes with AT&T and prohibited them from participating in any class action against the company. The Concepcions sued AT&T claiming that the company had committed fraud by charging them sales tax on phones that were advertised as free.

Courts Rule:

The California federal district court, and the Ninth Circuit Court of Appeals both found that California law invalidated the class action waiver as unconscionable. However, the Supreme Court found that the Federal Arbitration Act preempts state laws that discriminate against arbitration agreements and that the California law did just that.

What It Means:

Employers who use arbitration agreements with their employees may now wish to insert into their arbitration agreements language that prohibits employees from joining any class action against the company. For employers who do not use arbitration agreements but are fearful of the potential for class action matters, now may be the time to implement such agreements.