In some states, such as California, unsuspecting employers can find themselves facing millions of dollars in liability for technical violations of an obscure state labor code provision that is inconsistent with the laws of every other state in which the company may operate. These cases often morph into class actions and involve novel allegations regarding overtime, meal and rest breaks, pay statements, and other wage and hour issues. Now, however, employers are breathing a sigh of relief with the Supreme Court’s landmark ruling in AT&T Mobility v. Concepcion.

Arising in the context of consumer litigation, AT&T Mobility involved a wireless carrier that had moved to compel arbitration and further sought to enforce a class action waiver specifying that claims must be brought in an individual capacity and “not as a plaintiff or class member in any purported class or representative pleading.” The 9th Circuit, applying California state law, upheld the lower court’s decision that the class action waiver, by itself, rendered the arbitration agreement unconscionable and thus unenforceable. The U.S. Supreme Court, in a sharply divided 5-4 opinion authored by Justice Antonin Scalia, reversed the 9th Circuit by finding that the Federal Arbitration Act (FAA) preempts California’s law against class action waivers. 

The ruling came as no surprise to Supreme Court observers as the high court has been issuing a series of pro-business opinions that favor upholding arbitration agreements, including the recent case of Stolt-Nielsen S.A. v. AnimalFeeds International Corp. There, the Supreme Court held that when an arbitration agreement does not expressly address class arbitration, “a party may not be compelled under the FAA to submit to class arbitration.” Given the present lineup of conservative justices, including Justices John Roberts, Scalia, Clarence Thomas, Samuel Alito and Anthony Kennedy, it is likely that this trend of upholding the enforceability of arbitration agreements under the FAA will continue.

In light of AT&T Mobility, employers seeking to avoid potential exposure from employment-related class actions, particularly in states such as California that are hostile to business, should roll out arbitration agreements with class action waivers for their workforces. 

While the court in AT&T Mobility found that a class action waiver will not invalidate an otherwise enforceable arbitration agreement, employers must still craft their arbitration agreements in such a way to avoid other challenges to the agreement’s enforceability. For example, many jurisdictions require that the agreement be mutual, permit the recovery of statutory remedies, provide sufficient discovery, allow a neutral arbitrator to be appointed, and require the employer to pay the arbitrator’s fees. In other words, the agreement cannot be drafted in a way that is one-sided, harsh and oppressive to the employee. And, like any other employment agreement, the arbitration agreement must be supported by consideration lest it be unenforceable under basic contract principles. 

Even though AT&T Mobility will change the landscape for employment-related class actions, employees will likely litigate the contours of its holding. Some labor and employment law commentators already are speculating that AT&T Mobility will not apply to labor statutes that expressly authorize representational litigation. However, given the Supreme Court’s trend of applying the FAA broadly, it is a safe bet that the high court will uphold class waivers, even against claims in which the statute’s language authorizes class or other representational litigation.