Law
Viability of Class Action Waivers in Consumer Arbitration Clauses
Quick fact
In 2011, the U.S. Supreme Court in AT&T Mobility v. Concepcion upheld class action waivers in arbitration clauses, even when they make it economically irrational for individuals to pursue their claims.
Why this is interesting
You’ve probably agreed to one without knowing it—buried in a terms-of-service agreement, a clause that says you can never join a class action lawsuit. How can a single sentence strip away your right to band together with millions of other consumers?
Read the full explanation
Understanding Viability of Class Action Waivers in Consumer Arbitration Clauses
Imagine you buy a phone and it malfunctions, costing you a few hundred dollars. A class action lawsuit would let you join thousands of other customers to collectively sue the company. But when you signed up for service, you agreed to a contract containing an arbitration clause—a provision that says any dispute will be resolved by a private arbitrator, not a court. That clause often includes a waiver of your right to participate in a class action. This means you can’t team up with others; instead, you must go through arbitration alone. Because arbitration typically costs more than your claim is worth, you might simply give up. The key is that courts have agreed to enforce these waivers, based on the Federal Arbitration Act.
A deeper explanation
The viability of class action waivers rests on the Federal Arbitration Act (FAA) of 1925, which mandates that courts enforce arbitration agreements according to their terms. The Supreme Court’s decision in AT&T Mobility v. Concepcion (2011) held that the FAA preempts state laws that would invalidate class arbitration waivers, as such laws would interfere with the fundamental attributes of arbitration—its efficiency and informality. The Court reasoned that class arbitration would not be the bilateral arbitration the parties agreed to, and thus the waiver is valid. This means that as long as the arbitration clause is part of a valid contract, courts will enforce the waiver even if it effectively prevents consumers from vindicating small claims. The mechanism is simple: contract law gives parties freedom to agree on dispute resolution procedures, and the FAA elevates that choice over state consumer protection statutes. As a result, companies can essentially insulate themselves from class action liability by drafting arbitration clauses with waivers. This raises critical concerns about access to justice, because the cost of individual arbitration often exceeds the potential recovery, deterring consumers from pursuing legitimate claims.