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Companies have new protections against class-action lawsuits, thanks to two recent decisions by the U.S. Supreme Court.

The court’s decisions in American Express v. Italian Colors Restaurant and Oxford Health Plans v. Sutter enable companies to incorporate class-action waivers in their standard form contracts with investors, customers and vendors.

In American Express Co. v. Italian Colors Restaurant, Italian Colors Restaurant and other merchants brought a class action lawsuit against AmEx, asserting that it was using its monopoly power to force merchants to accept credit cards with fees that were significantly higher than the fees of AmEx’s competitors.

AmEx moved to compel individual arbitration with the merchants under its contracts, which required not only that all disputes be resolved in arbitration but also explicitly waived the merchants’ right to arbitrate claims on a class-wide basis.

The district court sided with AmEx, but the Second Circuit Court of Appeals reversed. In a 5-3 decision, the Supreme Court reversed the Second Circuit, holding that the parties’ contractual class-action waiver was enforceable.

In Oxford Health Plans LLC. v. Sutter, the Supreme Court reviewed the issue of whether an arbitrator had exceeded his powers under the Federal Arbitration Act when he interpreted the parties’ arbitration clause to authorize class arbitration. In affirming the lower courts’ rulings, the Supreme Court held that under the limited judicial review provided by the Federal Arbitration Act, the arbitrator’s interpretation of the parties’ agreement must stand.

These two court decisions should remind business owners and attorneys that the terms of arbitration, including the right to arbitrate claims on a class-wide basis, are entirely dictated by the wording of the contract.

By carefully drafting arbitration clauses, businesses can protect themselves from certain types of class-action lawsuits.

Source: here