A few months ago, we wrote about the gender discrimination lawsuit filed against retail giant Wal-Mart by a class of 1.5 million former and current female employees. The Supreme Court of the United States recently heard arguments in the case, and is expected to soon decide whether the plaintiffs may proceed with that is believed to be the largest class action lawsuit in U.S. history.

However, a recent Supreme Court decision may change the status of that case. Reversing a decision from the California Supreme Court, the high court ruled last month that companies and corporations may use contractual arbitration clauses to prevent consumers or employees from banding together to file class action lawsuits.

When customers buy a product or a service plan, or when employees accept a new job, they generally sign a contract. More often than not, a boilerplate arbitration clause is included somewhere in that contract, essentially requiring that an unsatisfied customer or unhappy employee resolve their dispute through arbitration instead of filing a lawsuit or joining a class.

Previously, California and several other states have refused to give effect to these arbitration clauses, finding them to be unfair to consumers and employees. The Supreme Court reversed those state rulings in a 5-4 decision, stating that the Federal Arbitration Act of 1925 takes precedent over state law, and that companies and consumers must utilize the arbitration clauses to resolve disputes.

Because most arbitration clauses do not allow for class claims, the effect of the ruling will likely be to limit class action suits against companies. Because single-claim arbitration is faster and much less expensive, the decision will provide a significant benefit for both companies and consumers.

Source: Los Angeles Times, "Companies can block customers' class-action lawsuits, Supreme Court rules", David G. Savage, 28 April 2011