On Apr. 24, 2019, in a split 5-4 decision in
Lamps Plus, Inc. v. Varela
, No. 17-988, the U.S. Supreme Court (SCOTUS) held that courts may not compel class action arbitration unless the parties expressly state their clear intent to arbitrate on a class-wide basis in their employment arbitration agreement. The holding and underlying rationale are important to employers because the Court decisively ruled that class arbitration “fundamentally” changes the nature of the “traditional individualized arbitration” envisioned by the Federal Arbitration Act (FAA). Thus, the Supreme Court said, “Courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.”
Following the Supreme Court’s ruling, arbitration agreements must unequivocally state that the parties agree to resolve class actions through arbitration in order to proceed this way. Courts cannot compel the parties to arbitration when an arbitration agreement is ambiguous about the potential for class arbitration.
Following a 2016 data breach, Lamps Plus employee Frank Varela filed a class action against the company asserting various statutory violations relating to the breach.
Lamps Plus moved to compel arbitration. The district court granted the employer’s motion based upon Varela’s employee arbitration agreement, but also allowed Varela to proceed with his class claims. Lamps Plus appealed the ruling to the U.S. Court of Appeals for the Ninth Circuit, arguing that the arbitration agreement only allowed for individual arbitration.
The Ninth Circuit Court of Appeals affirmed the district court’s ruling, holding that the arbitration agreement was ambiguous as to whether the parties agreed to submit class claims to arbitration as it did not specifically refer to class arbitration. Because California contract principles require that any ambiguity be resolved against the drafter (in this case, Lamps Plus) and in favor of the draftee (here, Varela), the appellate court held that there was a “contractual basis” for class arbitration and upheld the lower court’s ruling.
Lamps Plus appealed once again, this time to the Supreme Court of the United States. SCOTUS reversed the Ninth Circuit, holding that an ambiguous agreement cannot provide the necessary “contractual basis” for compelling class arbitration. SCOTUS continued, “Class arbitration is not only ‘markedly different’ from the ‘traditional individualized arbitration’ contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration. The statute therefore requires more than ambiguity to ensure that the parties actually agreed to arbitrate on a class wide basis.”
Employer Takeaway: This ruling is a win for employers! Courts can no longer impose class-wide arbitration on employers unless the employer’s arbitration agreement clearly and explicitly authorizes this. Only express agreements between the parties can lead to class arbitration.
Employers should have their employment counsel review their employment arbitration agreements to determine whether they comply with SCOTUS’ standards.
Have questions about arbitration agreements or any other pressing employment law issues? Your attorneys at Bradley & Gmelich can help.