Today, the Supreme Court decided AT&T Mobility v. Concepcion (pdf), a case we first reported on last June. The plaintiffs in the underlying case filed a class action complaining about being charged sales tax on phones that AT&T advertised as “free” once you bought the service plan. AT&T sought to enforce an arbitration provision in the sales contract and the plaintiffs countered that the provision was unconscionable because it required them to waive their right to proceed as a class action. The 9th Circuit court of appeals held that the class action waiver was unconscionable under California law and that the Federal Arbitration Act did not preempt California law regarding unconscionability.
In an opinion issued today, the Supreme Court reversed in a 5 to 4 ruling that broke down along familiar ideological lines (Scalia, Roberts, Thomas, Alito, and Kennedy in the majority; Breyer, Ginsburg, Sotomayor, and Kagan dissenting). The majority argued that California’s rule disfavoring class action waivers in arbitration agreements (as articulated in Discover Bank v. Superior Court) was preempted by federal law encouraging arbitration. The dissent countered that this effectively left plaintiffs without a remedy since, as Justice Breyer phrased it, “What rational lawyer would have signed on to represent the [plaintiffs] in litigation for the possibility of fees stemming from a $30.22 claim?”
Most of the attacks on arbitration agreements in California involve the doctrine of unconscionability. The doctrine, which arises more from judicial decisions than legislative enactments, finds certain agreements unenforceable if they don’t meet specified requirements. Some of these, such as the requirement articulated in Armendariz v. Foundation Health Psychare Services that the agreements contain a “modicum of bilaterality,” seem to reflect judicial suspicion (if not outright hostility) towards arbitration of employment claims. This latest decision shows that the Supreme Court will not allow California unconscionability analysis to run amok. To that extent, it’s an encouraging development for employers. And if class action waivers are now permissible in employment arbitration agreements, this provides a huge incentive for employers to have arbitration agreements with their employees.