Tuesday, May 3, 2011

Employment Rights | Consumer Class Actions Are Hampered

Generally, when you sign a contract, you agree to its terms. Whether you read the contract or not is no excuse. Yet sometimes if the contract provision is so unfair or unjust, the provision may be considered unconscionable.

Arguably there fraud schemes on massive scales. The cost of sales tax for just one person may be only a few dollars, but if a phone company rips off thousands and thousands of people by misrepresenting “free” phones, then the money adds up: it may be unconscionable.

So, to protect consumers, class action lawsuits are available. This type of lawsuit groups similarly situated individuals (the class) against a common enemy, like the thousands of consumers against a phone company.

Recently, the United States Supreme Court looked at a class action lawsuit against AT&T. The result was devastating for consumers and a victory for companies. The Court held in a slim 5-4 majority that pre-dispute mandatory arbitration agreements that ban class actions are enforceable. State law to the contrary is preempted by the Federal Arbitration Act.

What this means, specifically, is that the Supreme Court upheld AT&T’s contract provision that demanded arbitration. Arbitration is a method to resolve a legal issue, which is different than a trial at court. Arbitration has no jury, and the rules are less strict. Arbitration is usually considered to be a waste of time and money for attorneys that represent plaintiffs, because the outcome of the arbitration will generally not be the end of litigation. Arbitration is like a speed bump, or an extra step, that costs a lot of resources.

The Court’s decision also means that the Federal Arbitration Act will trump a state law. This decision went against California law.

So, for the Supreme Court to uphold arbitration, this will make it very difficult for lawyers to represent plaintiffs in class action lawsuits. It will be too expensive. As a lawyer that practices employment law, I realize how complicated these suits are – it was a big gamble for lawyers to take on these cases.

There is a possibility that the new Bureau of Consumer Financial Protection, headed by Elizabeth Warren, to limit the scope of the Supreme Court’s ruling. Or, legislation from Congress may restrict unfair arbitration clauses. Yet there is no likelihood that the government has the ability to act upon this case in the near future.

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