In January 2020, a 57-year-old former AT&T employee filed a putative class action alleging that the telecommunications giant engaged in a pattern and practice of age discrimination. The outcome of the case so far provides a case study on how corporations that rely too heavily on anti-litigation agreements can accidentally shoot themselves in the foot. For advocates of employee rights and others wary of corporate efforts to curb collective actions, there’s a bit of schadenfreude to be found.

According to the complaint, AT&T maintained a predilection toward edging out older employees, a top-down practice stemming from the highest levels of the company. AT&T is alleged to have undertaken a “course of action designed to terminate the employment of older workers through a centrally planned workforce reduction in its Technology & Operations business unit.” The employee, laid off as part of a “reduction in force” conducted by AT&T to gut the Technology & Operations unit, sought to bring a class-action lawsuit on behalf of herself and all former employees of AT&T affected by the company’s bias against older employees.

AT&T moved to compel arbitration, arguing that the named plaintiff signed a binding arbitration agreement in 2012 forbidding her from raising employment-related disputes in court. The trial court found, and the Third Circuit Court of Appeals agreed, that AT&T’s arbitration agreement was superseded by a general release issued by AT&T in 2019 at the time AT&T engaged in its mass layoffs.

The arbitration agreement came about in December 2011 when AT&T sent the plaintiff (and other employees) an email regarding a new alternative dispute resolution policy. She was advised that she had the opportunity to “opt out” of the new policy but, should she fail to do so by the deadline, she was “agreeing to the arbitration process as set forth in the Agreement.” The agreement, of course, included a collective action waiver.

Arbitration agreements like this have become popular in employment and consumer contracts in large part because they shield corporations from class actions. Arbitration is, by its nature, a private matter between two parties; collective action arbitration is not a thing. Consumer and employee rights advocates decry such agreements because they effectively shield large entities from liability when those companies injure a large number of individuals.

AT&T is already the poster child for the dangers inherent in such arbitration agreements and class action waivers: After AT&T effectively defrauded millions of customers out of a few dollars per month apiece by falsely claiming their plans included free cell phones, the Supreme Court ruled that the plaintiffs were barred from collective action. AT&T’s mobile plan contracts had included a class action waiver.

Individual plaintiffs lack the resources to pursue arbitration over small amounts, which is the entire point of class actions. The Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion was heralded as the beginning of the end of consumer and employment class actions.

Such agreements are not, however, foolproof. Back to the case at bar: When AT&T announced its workforce reduction in 2019, it offered a severance package to the plaintiff and other employees in exchange for signing a release of liability. The 2019 release expressly stated that it “set forth the entire agreement between and the Companies concerning termination of my employment” and that “[a]ny other promises or representations, written or oral, are replaced by the provisions of this document.” The 2019 release did not contain an arbitration clause, although it does include a class action waiver.

On appeal to the Third Circuit, the court found that the 2019 release superseded the 2011 arbitration agreement by its own terms. Although the arbitration agreement was broader, the 2019 release specifically applied to the plaintiff’s termination--including potential claims of age discrimination. The plaintiff is no longer bound to the arbitration agreement, at least with regard to her termination, thanks to AT&T trying to cover itself while engaging in mass layoffs.

Because of the 2019 release, the plaintiff’s case can proceed based on the validity of the release itself as well as the merits of her claim. Regarding the release of liability, the Eastern District of Pennsylvania recently ruled that a nearly identical release was not enforceable in precluding claims brought under the Age Discrimination in Employment Act. The plaintiff is thus free to continue pursuing her age discrimination claims. AT&T has, however, subsequently moved to dismiss the collective action claims in the complaint, citing the collective action waiver in the 2019 release.

Although the Third Circuit’s decision allows the plaintiff to proceed, the case is still a reminder of the dangers of arbitration agreements and class action waivers for the pursuit of justice in consumer class actions and employment litigation. Arbitration works best when the parties come from equal positions of power. When individuals are fighting against corporate giants, they need to act collectively. Arbitration agreements and collective action waivers serve to shield these entities from liability even when they engage in a widespread pattern of deleterious behavior.