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Class Action Waivers in Commercial Agreements
In recent years, commercial parties such as franchisors have become increasingly proactive in addressing their exposure to class actions. One preventative measure that parties often take is to include clauses in their commercial agreements requiring that all disputes be resolved by arbitration. Many such clauses also include language specifying that a right to participate in a class action (or a class-wide arbitration) is waived. Despite agreeing to such class action waivers, plaintiffs in certain cases have nevertheless attempted to bring class actions, arguing that the waivers are unconscionable, and therefore unenforceable. While the legal status of class action waivers is evolving in the United States, largely due to a U.S. Supreme Court decision earlier this year, franchisors that operate in the United States and Canada also should be aware of the differences in how the two countries address this important element of franchise contracts.
First, a quick review. Earlier this year, the U.S. Supreme Court considered the enforceability of class action waivers in AT&T Mobility LLC v. Concepcion et ux., 131 S. Ct. 1740 (2011). In that case, a clause in a cellular telephone contract specified that all disputes arising from the agreement be referred to arbitration, and prohibited class-wide arbitrations. After a dispute arose regarding a tax payable on free phones, the plaintiffs sued AT&T in California federal District Court. AT&T sought to enforce the class action waiver and stay the proceeding. The plaintiffs cited a California rule that invalidated most class action waivers in consumer contracts. Writing for a 5-4 majority, Justice Antonin Scalia overturned the California rule, enforced the waiver, and stayed the action.
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