By Lindsay Reynolds
Employers' use of arbitration agreements continues to gain popularity. Arbitration provides the benefit of more relaxed procedural rules and effectively eliminates the parties' ability to appeal the arbitrator's final decision. This results in lower costs and greater efficiency and speed in resolving disputes with employees. On Wednesday, the Supreme Court issued an opinion that bolsters employers' ability to use arbitration agreements to bar class actions in court and arbitration.
The case was originally filed by Frank Varela in California federal court. Varela, like most Lamps Plus employees, had signed an arbitration agreement when he started work for the company. The arbitration clause provided that "arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings related to my employment."
The underlying lawsuit stemmed from an incident in 2016, when a hacker impersonating a company official fooled a Lamps Plus employee into disclosing tax information of approximately 1,300 other employees. A fraudulent income tax return was filed in Varela's name. Varela filed claims against Lamps Plus on behalf of a putative class of employees whose tax information had been compromised.
Lamps Plus asked the court to require each employee in the class to pursue his or her claims individually through arbitration, rather than as a class. Class arbitration does not present the same benefits as individual arbitration, that is, there are more procedural requirements, which makes the process slower and more costly, much like litigating a class action in court. The court allowed the case to be transferred to arbitration – but on a class-wide basis.
Lamps Plus appealed. The Ninth Circuit Court of Appeals determined that the agreement's language was "ambiguous" on the issue of class arbitration, but ultimately affirmed the lower court's decision to allow employees to arbitrate their claims as a class. The Supreme Court granted certiorari.
The Supreme Court explained that parties' consent to class arbitration is "essential" and concluded that courts "may not infer from an ambiguous agreement that parties have consented to arbitrate on a class-wide basis." That is, the Court will not infer consent to class-wide arbitration absent specific consent in the arbitration agreement. As a result, the Lamps Plus employees will be required to pursue their claims individually through arbitration.
For employers whose arbitration agreements are ambiguous as to class arbitration, the Lamps Plus case provides ammunition to argue the parties did not consent to class arbitration and therefore cannot be compelled to do so. Employers should review their arbitration agreements to determine whether there is an unambiguous class action waiver clause to make clear that the parties do not consent to class arbitration. On the other hand, if employers wish to arbitrate claims on a class-wide basis, the arbitration agreement must clearly state that the parties consent to do so.
This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have further questions on this topic, please email a member of our Labor & Employment Practice Group, or the attorney with whom you normally consult.