Supreme Court Votes Pro-Arbitration Once Again and Upholds Class Arbitration Waiver

Lest there be any lingering confusion, the U.S. Supreme Court has once again reminded us that arbitration agreements are to be “rigorously enforced.” In this latest installment of pro-arbitration decisions from the high court, a majority of the justices (5-3) upheld a class arbitration waiver as enforceable even when the cost of individually arbitrating a federal statutory claim exceeds the potential recovery. Although the decision arose in the antitrust context, the broad language in the opinion opens the door for enforcement of class action waivers in wage-and-hour class and collective actions where employers have included such waivers in their arbitration agreements with their employees.

In American Express v. Italian Colors Restaurant, the Court determined that the plaintiff bringing antitrust claims against American Express Co. must bring individual claims in arbitration because the arbitration agreement provides that there “shall be no right or authority for any Claims to be arbitrated on a class action basis.”

Italian Colors Restaurant argued that the class arbitration waiver should not be enforceable because the costs to prove its individual claim in arbitration would well exceed its maximum recovery for the antitrust claims it sought to enforce. Because it would be economically infeasible for individuals to pursue individual claims, Italian Colors Restaurant argued that enforcing the class arbitration waiver would bar the “effective vindication” of its federal statutory rights.

Writing for the majority, Justice Antonin Scalia rejected this “effective vindication” argument and upheld the class arbitration waiver.  In doing so, the Court specifically held that the Federal Arbitration Act (“FAA”) does not allow courts to invalidate a contractual wavier of class arbitration because the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. The Court found that the “effective vindication” exception was created to prevent “prospective waiver of a party’s right to pursue statutory remedies” not simply because “providing a statutory remedy” would be too costly for the plaintiff.

The Court also pointed to its decision in AT&T Mobility LLC v. Concepcion, as having “all but resolve[d] this case” because it already “specifically rejected the argument that class arbitration was necessary to prosecute claims that might otherwise slip through the legal system.”

Justice Kagan wrote for the dissent, arguing for the “effective vindication” rule as a mechanism that should be applied here “to prevent arbitration clauses from choking off a plaintiff’s ability to enforce congressionally created rights.” The dissent explained that the Court failed to consider the plaintiff’s actual argument about why this rule precludes the enforcement of the arbitration agreement, and instead simply said to the plaintiff: “Too darn bad.”

American Express is another example of the Supreme Court “rigorously enforc[ing]” arbitration agreements under the FAA, now including class and collective action waivers that force individual claims into arbitration. This decision also makes clear that plaintiffs cannot escape arbitration even when they assert statutory claims.