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How recent U.S. Supreme Court rulings may be applied to employment-related arbitration agreements

published in McAfee & Taft EmployerLINC Update | June 28, 2013

In June 2013, the U.S. Supreme Court issued two decisions clarifying the standard of review federal courts will use when reviewing decisions regarding the availability of class-action arbitrations in mandatory arbitration programs. Although the decisions, Oxford Health Plans, LLC v. Sutter and American Express Co. v. Italian Colors Restaurant, were both outside the employment setting, the decisions could be applied to employers using mandatory arbitration agreements in employment contracts and arbitration programs.

In the Sutter decision, the plaintiff was a party to an arbitration agreement that did not expressly provide for class arbitration, and the arbitrator in that matter found that the language contained in the agreement was broad and included all conceivable court actions, including class actions. After a series of appeals, the Supreme Court affirmed the arbitrator’s decision to allow the class action to proceed in arbitration, holding that the Federal Arbitration Act (FAA) allowed courts to vacate an arbitrator’s decision “only in very unusual circumstances.”

In American Express Co., the Supreme Court again addressed the issue of class-action arbitration, ruling that a waiver of class arbitration in a commercial contract is enforceable under the FAA, even if the costs incurred by plaintiffs in individually pursing arbitration of a federal statutory claim exceed the potential individual recovery.

Employer takeaways

There are three key items that employers should take from the Sutter and American Express decisions with regards to the potential for class-action arbitration. First, the parties in Sutter specifically agreed that the arbitrator was vested in making the decision of whether or not class action could proceed. In analyzing this issue, the court stated that “In sum, Oxford chose arbitration and it must now live with that choice. . . .” A close reading of the Sutter opinion reveals that the Supreme Court possibly disagreed with the arbitrator’s decision to allow class-action arbitration in the absence of express language permitting that mechanism. Accordingly, it is in an employer’s best interest to require that the court make the decision as to whether or not class-action arbitration is permitted. By doing so, a court may review the arbitrator’s determination of such a matter de novo, which allows a complete review of the record, versus the higher standard under the FAA to overturn an arbitrator’s potentially incorrect decision.

The second key item is that employers should consider including specific, unambiguous waivers of class- and collective-action mechanisms in their arbitration agreements. Under the Supreme Court’s American Express decision, the terms of the arbitration agreement will be “rigorously enforced,” as long as Congress has not expressed any intent for claims arising under the employment law(s) at issue to be exempt from the requirements of the FAA. This language will present a high bar for plaintiff’s lawyers attempting to side-step or nullify an express class-action waiver contained in an employer’s arbitration agreement.

Finally, it is critical that employers remain mindful of the costs associated with employees pursuing arbitration claims (filing fees, arbitrator fees, etc.), even if employers cannot control the costs incurred by employees in proving their claims (attorney fees, expert fees, personal time spent on prosecution of claims, etc.).

As discussed above, neither Supreme Court decision directly addresses the effect of a class-action waiver in a mandatory arbitration agreement in the employment context. However, the Supreme Court’s language suggests that the outcome of an employment-specific arbitration agreement would not be too dissimilar.

For more information regarding the impact of these recent decisions on your company’s arbitration program or for more information on how to implement a mandatory arbitration program, please contact one of McAfee & Taft’s employment attorneys.