Franken-Bill Would Have a Monstrous Impact on Mandatory Arbitration Clauses
In the wake of the Supreme Court’s April 27th decision in AT&T Mobility v. Concepcion.pdf, Senator Al Franken (D-Minn) and others re-introduced legislation (S.987, H.R. 1873.pdf) that would forbid pre-dispute mandatory arbitration agreements in employment, consumer or civil rights disputes.
The Concepcion opinion (reviewed in Greg Mersol's April 27, 2011 post on this blog and in the May 5, 2011 Baker Hostetler Employment Class Action newsletter) involved a consumer class action but will impact the enforcement of many types of arbitration agreements.
The Concepcions, customers of AT&T Mobility LLC (“AT&T”), brought suit after they were charged sales tax on a phone that had been advertised as “free” with the purchase of an AT&T service plan. The service contract included an arbitration agreement requiring that claims be brought in the parties’ “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.”
When AT&T moved to compel arbitration, the Concepcions successfully had the class waiver provision declared invalid under a California rule (the so-called “Discover Bank rule”, named for the seminal case on the issue: Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005)), which held that class waiver provisions, like that contained in the AT&T arbitration agreement, are unconscionable and in violation of the state’s public policy against exculpation. AT&T appealed, and the Ninth Circuit affirmed.
The Supreme Court reversed. Justice Antonin Scalia, writing for the majority, held that the Discover Bank rule conflicted with the purpose and language of the Federal Arbitration Act (“FAA”) and therefore was preempted as an improper challenge to the enforcement of arbitration agreements. The Concepcion decision means that an employer now can avoid class action liability by providing for mandatory arbitration of employment claims and restricting that arbitration to individual disputes.
The reintroduced bill, entitled “the Arbitration Fairness Act of 2011” (the original was introduced in 2009), is intended to counter that outcome. It contains a number of “findings” including that “[a] series of decisions by the Supreme Court . . . have changed the meaning of the [FAA] so that it now extends to consumer disputes and employment disputes.” Another finding declares that “mandatory arbitration undermines the development of public law because there is inadequate transparency and inadequate judicial review . . . . ”
This bill was not unexpected but has no Republican support and little chance of passage at this time. But, never say never. Senator Franken did succeed with earlier legislation, known as the “Franken Amendment”, which required withholding defense contracts if companies required their employees or independent contractors to enter mandatory arbitration agreements. (See Section 8816 of the Department of Defense Appropriation Act for 2010, and the implementing regulations at 48 C.F.R. Section 222.7401).
The Bottom Line: We have not seen the last of the opposition to the Concepcion decision or to mandatory arbitration for employees or consumers. Many pro-employee and consumer groups would like to take a bite out of all non-commercial arbitration and give every American an inalienable right to present their claims in a class action or other aggregate proceeding.