On Wednesday, the Supreme Court ruled that companies may include arbitration provisions in their standardized contracts that prohibit customers from pursuing any claim against the company as a class-action. The ruling means, as a practical matter, that service agreements and many other types of contracts will increasingly include provisions that require all legal claims against the company to proceed on an individual basis. The decision also nullifies, for now, the decision by the Massachusetts Supreme Judicial Court in 2009 that found a class-action waiver provision in a consumer contract unconscionable under state law. The Supreme Court's AT&T opinion can be found here.
Mandatory arbitration provisions, through which the parties agree to pursue any dispute in arbitration rather than court, are common in all types of contracts. The issue in AT&T is more specific and hotly contested. Industries such as cable and wireless providers often insert provisions in their standard service agreements through which the customer agrees to bring any claim against the company in arbitration and only as an individual, not as a class. Many courts and circuits have struck down the provisions over the past several years under state laws that prohibit unconscionable contractual arrangements. (Full disclosure: I was part of the defense counsel in one such case.) By a 5-4 vote, the Supreme Court held that the Federal Arbitration Act and the federal policy in favor of arbitration trumps state contract laws that prohibit such clauses.
The AT&T decision is significant for employment attorneys, as class action waivers will become more prevalent in all large contractual relationships. Several federal decisions in Massachusetts have already struck down class action waivers in employment contexts. The continuing authority of those decisions is now in doubt.