Friday, August 28, 2020
Many firms require consumers, employees, and suppliers to sign class action waivers as a condition of doing business with the firm, and three recent US Supreme Court cases, Concepcion, Italian Colors, and Epic Systems, have endorsed companies’ ability to block class actions through mandatory individual arbitration clauses. Are class action waivers serving the interests of society or are they facilitating socially harmful business practices? This paper synthesizes and extends the existing law and economics literature by analyzing the firms’ incentive to impose class action waivers. While in many settings the firms’ incentive to block class actions may be aligned with maximizing social welfare, in many other settings it is not. We examine conditions in which class action waivers can compromise product safety, facilitate anticompetitive conduct, and support harmful employment practices. Our analysis delivers a more nuanced, policy-based critique of the recent US Supreme Court cases, highlights several new unresolved issues, and identifies future challenges for legal scholarship.