Last month, the Supreme Court ruled in American Express v. Italian Colors Restaurant that the Federal Arbitration Act (FAA) does not permit courts to invalidate a contractual waiver of class arbitration simply because a plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the plaintiff’s potential recovery. Although the court issued its holding in the context of an antitrust dispute between merchants and credit card giant American Express, the repercussions of the decision are likely to be felt most immediately in the realm of employment litigation, particularly with respect to wage-and-hour claims brought under the Fair Labor Standards Act (FLSA). The rest of this article discusses the court’s reasoning in the American Express decision, and details the impact it may have on employers’ risk of exposure to federal class action arbitration.
American Express: The Court’s Ruling
The three dissenting justices in American Express sharply criticized the majority’s opinion, arguing that under the “effective vindication” doctrine—which, according to the dissent, bars application of an arbitration clause when it operates to immunize a party from a potentially meritorious federal claim—the class action waiver should have been found unenforceable, as it effectively foreclosed the merchants from obtaining relief for violations of their federal statutory rights, and allowed American Express to insulate itself from antitrust liability. The dissent went on to state that the majority’s interpretation of the “effective vindication” rule was at odds with the overarching objectives of the FAA because it provided a “foolproof way of killing off valid claims,” rather than ensuring that arbitration remained a feasible method of dispute resolution for claimants.
A Favorable Outcome for Employers