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Supreme Court Gives Win to Employers, Limiting Class Arbitration

Posted Tuesday, May 21, 2019 6:28 am

In a 5-4 decision split along ideological lines, the U.S. Supreme Court recently held that a court cannot compel an employer to participate in classwide arbitration under the Federal Arbitration Act unless the arbitration agreement unambiguously authorizes class arbitration.  See Lamps Plus, Inc. v. Varela (April 24, 2019).

Background

A hacker tricked an employee of Lamps Plus into disclosing tax information of about 1,300 employees.  Soon after, a fraudulent federal income tax return was filed in the name of one of the employees, Frank Varela.  Varela filed a class action against Lamps Plus on behalf of employees whose information had been compromised.  Lamps Plus asked the court to compel arbitration against Varela based on an arbitration agreement he had signed when he had started working.  The court rejected Lamps Plus’s request for individual arbitration, instead compelling classwide arbitration.  Lamps Plus appealed.

No Class Arbitration Without Employer Agreement

The case made its way to the Supreme Court, which noted that “arbitration is strictly a matter of consent.”  The Court preliminarily observed that “a court may not compel arbitration on a classwide basis when an agreement is ‘silent’ on the availability of such arbitration.”  In this case, the agreement was not “silent,” but it was ambiguous on the issue of class arbitration.  The question, therefore, was whether a court could compel classwide arbitration based on an ambiguous agreement.  The Court held that it could not.

According to the Supreme Court, an employer cannot be forced into classwide arbitration unless the contract unambiguously demonstrates that the employer agreed to classwide arbitration.

The Law For Now . . .

While this decision may be a win for employers, it is certainly not the end of the issue.  In her dissenting opinion, Justice Ginsburg called on Congress to “correct” the Court’s decision, which she viewed as facilitating companies’ efforts to insert solo-arbitration-only clauses into agreements that employees lacking bargaining power cannot remove.  Forced arbitration is already a hot topic in recent Congressional hearings, so there is a possibility that Congress will accept Justice Ginsburg’s invitation and respond to the Supreme Court’s recent employer-friendly decisions on arbitration.

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