Wage Law

Last year, the landmark Green Tree Financial Corp. case held that, if an arbitration agreement is silent regarding the availability of class-wide relief, the arbitrator, rather than a judge, decides whether class certification and class-wide relief is permitted. In response Green Tree Financial Corp., the American Arbitration Association issued supplementary rules for class arbitrations last year, governing proceedings framed as class arbitrations. AAA will administer demands for class arbitration pursuant its Supplementary Rules for Class Arbitrations if (1) the underlying agreement specifies that disputes arising out of the parties' agreement shall be resolved by arbitration in accordance with any of the Association's rules, and (2) the agreement is silent with respect to class claims, consolidation or joinder of claims. AAA is not currently accepting demands for class arbitration where the underlying agreement prohibits class claims, consolidation or joinder, unless a court order directs the parties to submit their dispute to an arbitrator or to AAA.

The policy was recently reviewed and AAA had this to say:

It has been the practice of the American Arbitration Association since its Supplementary Rules for Class Arbitrations were first enacted to require a party seeking to bring a class arbitration under an agreement that on its face prohibits class actions to first seek court guidance as to whether a class arbitration may be brought under such an agreement. The Association’s practice has been neither to commence administration of a case nor to refer such a matter to an arbitrator until a court decides that it is appropriate to do so. The Association’s determination not to administer class arbitrations where the underlying arbitration agreement explicitly precludes class procedures was made because the law on the enforceability of class action waivers was unsettled; the Association takes no position as to whether such clauses are or should be enforceable.

In a recent review of this practice by the Association’s Executive Committee it was agreed that this practice should be maintained in light of the continued unsettled state of the law. Courts in different states and different federal circuits have reached differing conclusions concerning the preclusion of class actions by agreement and “gateway” issues generally. However, the courts that have confronted the question have generally concluded that the decision as to whether an agreement that prohibits class actions is enforceable is one for the courts to make, not the arbitrator. In fidelity to its Due Process Protocols, the Association will continue to require all proceedings brought to it for administration to meet the standards of fairness and due process set forth in those protocols, but the Association will not seek to make decisions concerning class action agreements that the courts appear to have reserved for themselves.

The Executive Committee also determined at the same meeting to proceed forthwith in the creation of a special committee to explore the possibility of identifying counsel who could assist parties who cannot afford to pay for an attorney in arbitral proceedings. This effort would supplement the Association’s current ability to provide arbitrators who will serve pro bono, or for a reduced fee, in appropriate cases.

The Association will continue to monitor developments in this rapidly evolving intersection of arbitration and the courts.

The policy certainly is not illegal, but it reinforces the widespread belief that an AAA hearing room is not a friendly environment for consumers, employees and other individuals.