The U.S. Supreme Court ended its term this week.  As the Justices start their three-month vacation, employers should reflect on two important decisions from the Court’s last term dealing with class actions.  What are the takeaways?

(1)  One-size-fits-all class actions for discrimination cases won’t cut it.   

This year’s blockbuster case, Dukes v. Wal-Mart, was a big win for employers.  Betty Dukes, a 54-year-old and six-year employee of Wal-Mart, sued the company for discrimination when she found out that she did not receive the same opportunities for promotion as her male colleagues did.  Dukes’ lawsuit was brought on behalf of herself and others “similarly situated” (i.e., other women claiming to be discriminated against in their pay and promotions by Wal-Mart).  To be exact, Dukes proposed a class of plaintiffs that included every woman who had ever worked at any Wal-Mart store in the entire county within the last 13 years – this encompassed 1.5 million women!

The Court said no dice and held that nationwide certification of a class of female employees for a discrimination case was not consistent with the federal rules.  The rules require that a party seeking class certification prove that the class of plaintiffs has common “questions of law or fact.”  Dukes’ theory that Wal-Mart had uniformly discriminated against all women in the proposed class in the same way, to the same degree, over the same period of time, and for the same reason just didn’t fit within the scope of the rules.

For employers, this case has several takeaways.  First, the level of decision-making authority of local management is important.  Employers should continue to have centralized anti-discrimination and anti-harassment policies as well as enable local managerial discretion in personnel decisions with centralized oversight.

Second, the federal rule on class actions has meaning.  Employers now have a better chance defending class certification by showing lack of “significant proof” of a single common issue among potential plaintiffs.

Third, no, the employment class action is not dead.  Future class litigation will just require more focused facts and to be brought by employees under similar management.

(2)  Class action arbitration clauses are a must.

In AT&T Mobility LLC v. Concepcion, the Court said that the Federal Arbitration Act (“FAA”) preempts state law and court rulings that have been used in the past to invalidate class action waivers in arbitration agreements.  For example, state law, like that in California, says that unconscionability could be a basis for invalidating class action waivers in consumer contracts.  That is what Liza and Vincent Concepcion (and fellow class plaintiffs) argued when trying to get around the class action waiver in their cellular telephone service contracts with AT&T after being charged sales tax on the retail value of phones they were provided for “free” under the contracts.

The Court disagreed.  It said the FAA, the law that permits private dispute resolution through arbitration, controls.  The Court based its conclusion on its long-standing recognition that the FAA reflects a “liberal federal policy favoring arbitration” and that the FAA should be interpreted based on the “fundamental principle that arbitration is a matter of contract.”

Following this ruling, every employer big enough to face significant class action litigation risk can now have employees sign an agreement to arbitrate as a condition of employment and require that any claim brought in arbitration be an individual one.  While there are pros and cons to arbitration, an employer who already institutes a mandatory arbitration agreement for employees, can now use the agreement to avoid class action liability.