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The Death Knell of Wage and Hour Class Actions?



By Jonathan Gerber

The ruling
An Italian restaurant in Oakland, California, on behalf of itself and a class of similarly situated merchants who accept payments through a certain major credit card company, brought antitrust claims against the credit card company challenging the arbitration and class waiver provisions of the company’s Card Acceptance Agreement (CAA).  The CAA at issue between the credit card company and the putative class of merchants required all disputes arising between the parties to be resolved by arbitration and further provided that “there shall be no right or authority for any claims to be arbitrated on a class action basis.”  

The merchants filed suit in district court alleging the credit card company violated federal antitrust law by unlawfully using its “monopoly power” in the market to “coerce” merchants into accepting the CAA which, according to the merchants, had significantly higher usage rates than other credit card providers.  Thus, they argued the cost of suing on an individual basis was so significant -- when juxtaposed against their individual potential recovery -- that enforcement of the CAA’s provisions requiring individual arbitration would preclude the merchants’ “effective vindication” of their alleged statutory rights.  The credit card company moved to compel individual arbitration of the claims based on the aforementioned CCA provisions, and based on the Federal Arbitration Act’s (FAA) requirement that courts strictly enforce contractual arbitration terms.  The district court agreed, compelled arbitration, and eventually dismissed the suit.

The Second Circuit, however, agreed with the merchants, and reversed the district court.  It held the CAA’s class-action prohibition and individual arbitration provisions were unenforceable under the “effective vindication” doctrine due to the prohibitive costs of individual arbitration of the merchants’ claims.  

In an ultimate victory for employers, the Supreme Court reversed the Second Circuit, finding in favor of the credit card company.  The Supreme Court found the FAA required courts to “rigorously enforce” arbitration agreements as well as class-actions waivers, according to the terms of the parties’ contract.  “Arbitration is a matter of contract,” according to the Supreme Court, and it found no reason to justify interference with the CAA, which it found to be an enforceable contract between the credit card company and its merchants.  In its broadly-worded decision, the Supreme Court held courts may not invalidate a contractual waiver of class arbitration simply because the cost of such individual arbitration would allegedly exceed the amount of potential recovery to plaintiffs.   

The implications
Although the case arose in the context of credit card payment acceptance agreements, the Supreme Court’s decision will almost certainly have considerable and vast implications for all class litigation, including in the area of wage hour claims.  At the least, it affirms what is a growing disfavor of class litigation among courts and an increased propensity to “rigorously enforce” the contractual terms of employment agreements.  Effectively, this and other recent Supreme Court rulings allow employers to insulate themselves from class exposure so long as they have express (and well-drafted) provisions in their employments agreements mandating individual arbitration of claims and prohibiting class-based litigation.  

While the Supreme Court’s decision is a win for employers, it does not completely insulate employers from class exposure.  Disgruntled employees may still bring class claims against employers, notwithstanding express arbitration and class waiver provisions in their employment agreements, in three scenarios: (1) pursuant to the savings clause of the FAA, which subjects such provisions to ordinary contract defenses, such as fraud, duress, and unconscionability; (2) pursuant to the “effective vindication” doctrine, which has been limited by the Supreme Court’s decision; and (3) where “a contrary congressional command” prohibits waiver of the class-action mechanism and/or arbitration agreements, such as cases arising in the workers’ compensation arena.  

The jury is still out to see how lower courts interpret the decision, but the Supreme Court has provided what appears to be pretty specific advice: “arbitration is a matter of contract.”  For those who include express and otherwise enforceable individual arbitration mandates in their employment agreements, the Supreme Court’s decision signals the death knoll of wage and hour class litigation, at least for the foreseeable future.


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