In AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court abrogated California’s Discover Bank rule for determining the validity of class waivers in arbitration provisions of consumer adhesion contracts. The Court interpreted Discover Bank as allowing any party in a consumer contract to demand class arbitration. According to Justice Scalia, class arbitration is inconsistent with the Federal Arbitration Act (FAA). As a result, Discover Bank stands as an obstacle to federal objectives, and is therefore preempted by the FAA.
In Concepcion’s wake, two important questions have been raised at the state and federal levels. The first is whether Concepcion also abrogates state court tests for addressing the validity of class waivers in employment contracts. The second is whether federal statutes, such as the National Labor Relations Act (NLRA) or the Fair Labor Standards Act (FLSA), create an unwaivable right to collective action that renders class waivers in employment contracts unenforceable.
This Comment makes two arguments in response to these recent questions. It then provides a two-step framework for addressing class waivers in employment contracts. The first argument is that Concepcion was wrongly decided. State unconscionability tests allow courts to resolve the problem of unequal bargaining power in consumer adhesion contracts by allowing a collective action option in certain situations. These tests can fall squarely within the FAA’s § 2 saving clause without presenting preemption problems.
The second argument is that Concepcion should be read as only abrogating Discover Bank. Concepcion has nothing to do with employment contracts, and tests such as that in Gentry do not raise the same concerns cited in Concepcion. Moreover, federal statutes such as the NLRA and the FLSA create the right of employees to pursue collective action in certain situations in order to prevent unequal bargaining power. Those situations do not raise preemption concerns.
Until the U.S. Supreme Court provides further clarification, courts should use a two-step framework for analyzing class waivers in employment contracts. The first step should be to determine whether the employee’s claim falls within a federal statute that creates a substantive right to collective action. If it does, the class waiver should be invalidated. If it does not, then step two requires the court to apply the relevant state law test for determining the validity of class waivers in employment contracts. This proposed framework will preserve longstanding federal policy favoring the balance of bargaining power between employees and their employers.