Decision In DirecTV Case Benefits Employers

Decision In DirecTV Case Benefits Employers

The United States Supreme Court on Monday, December 14, 2015 ruled that dissatisfied customers of DirecTV could not band together in a class action and must instead pursue individual arbitrations. DirecTV, Inc. v. Imburgia.

The decision, by a 6-to-3 vote, was the latest in a series of U.S. Supreme Court decisions that have made it harder for consumers and employees to go to court to pursue class action claims in Court.

In this case, the Court ruled in favor of the enforceability of arbitration clauses, communicating again that the Court’s preference is to enforce arbitration provisions. This decision dealt with a consumer agreement and not an employment case.  However, the decision will undoubtedly provide a further boost to those companies that have arbitration agreements, with class action waivers, with their workforces.

DirecTV’s First Act Was A Horror Flick

This case arose from a 2008 lawsuit brought by two customers who objected to the company’s early termination fees and sought to represent a class of people in the same situation.  The Plaintiff brought the class action in state court, despite the fact her customer contract with DirecTV contained a mandatory arbitration clause.

At the time the case first started, state law prohibited this type of mandatory arbitration agreement which prohibited class-wide relief.  DirecTV therefore did not seek to enforce the agreement.  However, after the U.S. Supreme Court in 2011 allowed companies to use their contracts to forbid class actions, DirecTV asked a state court judge to dismiss the lawsuit and require arbitration.  See AT&T Mobility LLC v. Concepcion (2011).

The Second Act Showed Us The Enemy In Action

The trial court denied DirecTV’s motion to compel arbitration and the state’s Court of Appeal affirmed.  The state court felt the language of the arbitration agreement showed the parties wished to have state law control.  The case found its way up to the U.S. Supreme Court.

The Final Act Is A Fairytale Ending For Businesses and Employers

The Court’s majority agreed with DirecTV.  DirecTV persuaded the Court that the FAA gives federal courts power to ensure state court decisions do not frustrate the strong federal policy favoring arbitration. The Court held that the substantive requirements of the FAA are well-founded and that state court decisions cannot flout the essential tenets of the federal law.

Justice Stephen G. Breyer, in the Court’s Majority Opinion, said that the state courts had failed to take into account the Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion. Justice Breyer acknowledged that the parties to a contract might choose to be governed by any legal system they chose.  “In principle, they might choose to have portions of their contract governed by the law of Tibet, the law of prerevolutionary Russia, or (as is relevant here) the law of California,” he wrote, without reference to the 2011 decision.  But he said the right way to read the contract was to assume that it referred to valid state laws and not to ones displaced by the 2011 decision.

The Court further held that although state courts have the ultimate authority in interpreting state law, the federal courts have the authority under the FAA to “decide whether the decision of the state court places arbitration on equal footing with all other contracts.”

The Sequel: Employment Arbitration Agreements

The Court’s rationale sends a clear message to employers that the Federal Courts will favor their arbitration agreements with their employees.  This DirecTV decision further provides guidance to employers about how they draft their employment agreements, with respect to arbitration clauses.

Contributor:  Alden J. Parker, Attorney at Law | Weintraub Tobin