Going It Alone: The Supreme Court Continues to Limit Class Arbitration for Employees
If you’re waiting for a reversal of the trend at the Supreme Court to limit employers’ ability to insist on arbitration instead of litigation, or of the trend limiting class claims, keep waiting.
The Supreme Court continues to limit the ability of employees to pursue class arbitration against their employers. The latest salvo—the Court’s decision in Lamps Plus, Inc. v. Varela—comes on the heels of last year’s Epic Systems Corp. v. Lewis, which found that class action waivers in individual arbitration agreements between employers and employees are enforceable. Taking the next natural step in limiting class actions, Lamps Plus now requires arbitration agreements to specifically permit class claims; if an arbitration agreement leaves the issue unaddressed, no class claim is available at all.
Bottom line: if the agreement doesn’t say an employee can pursue a class claim, an employee can’t pursue a class claim.
In Lamps Plus, an employee brought suit against his employer, Lamps Plus, due to a data breach causing a fraudulent tax return to be filed on the employee’s behalf. The employee brought the matter as a putative class action, seeking to represent all similarly situated Lamps Plus employees. Lamps Plus sought to compel individual arbitration based on the arbitration agreement the employee signed, and also argued that class arbitration was unavailable under the agreement.
The Ninth Circuit explained that the language of the agreement was ambiguous regarding class arbitration. As such, the Ninth Circuit held that class arbitration was allowed since the ambiguity was to be interpreted against the party that drafted the contract, in this case Lamps Plus.
The Supreme Court reversed, holding that even if an arbitration agreement is ambiguous on the availability of class arbitration, that ambiguity is not enough to show the parties specifically agreed to class arbitration.
The Court explained there is stark difference between individual arbitration and class arbitration, with the former allowing for more efficient resolution of disputes. On the other hand, class arbitration lacks these benefits, and is more likely to be “slower, more costly, and more likely to generate procedural morass than final judgment.” Due to the difference between individual and class arbitration, the Court explained that under the Federal Arbitration Act an agreement cannot “infer consent to participate in class arbitration” without an affirmative contractual basis showing the parties “agreed to do so.”
In other words, ambiguity is not enough – the arbitration agreement must have clear language showing both parties agree to allow class arbitration of claims. Without this clear language establishing consent between the parties, class arbitration is unavailable.
WHAT SHOULD EMPLOYERS DO NOW?
Employers should again take this opportunity to review their arbitration agreements with their employees. While the holdings of Epic Systems and now Lamps Plus provide more leniency for employers in staving off class arbitration, clarity is still key with these agreements.
Employers should strive to eliminate uncertainty by crafting clear language eliminating any chance of class arbitration. Employee arbitration agreements should be drafted to ensure that employees can only bring individual actions, that they are waiving their right to class action arbitration, and that both parties acknowledge they are in no way consenting to class arbitration. In doing so, employers will meet their objectives of ensuring individual arbitration while doing their best to side-stepping a costly court battle over the scope of arbitration.