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Supreme Court Limits Class Action Arbitrations

Courts may not compel employers to arbitrate class actions—i.e., cases where several individuals collectively assert claims against their employer—unless the underlying arbitration agreement clearly authorizes class arbitrations, the Supreme Court recently held.FN1 In Lamps Plus Inc. v. Varela, the Supreme Court held that ambiguous arbitration agreement language concerning class action claims is insufficient to force an employer to arbitrate claims on a class-wide basis.

            In this case, an employee filed a federal class action lawsuit based on a data breach involving his and others’ employment records. Based on an arbitration provision the employee had signed, the defendant employer sought a court order to compel individual arbitration of the employee’s own claims. Despite the fact the arbitration agreement did not specifically allow for class arbitrations, the lower courts ordered class action arbitration, which is more costly and slower than individual arbitration, and also creates due process issues not associated with individual arbitration.

            The Supreme Court reasoned that under the Federal Arbitration Agreement (the “FAA”),FN2 “arbitration is a matter of consent, not coercion,” and that “courts may not infer consent to participate in class arbitration absent an affirmative contractual basis for concluding that the party agreed to do so.” As a result of the decision, the employer at issue, Lamps Plus, need not arbitrate its employees’ data breach claims on a class-wide basis.

Takeaway

            The Supreme Court’s decision provides assurances that employers cannot be compelled to arbitrate class claims unless they explicitly agree to do so. Employers with any doubts about the scope of their arbitration agreements should contact an employment attorney to review the agreements.

Footnotes

FN1:   Lamps Plus Inc. et al. v. Varela, No. 17-988, 587 U.S. ___ (Apr. 24, 2019). See https://www.supremecourt.gov/opinions/18pdf/17-988_n6io.pdf. The decision was divided, with a 5-4 majority reversing the Ninth Circuit Court of Appeals.

FN2:   The United States Arbitration Act (Pub.L. 68–401, 43 Stat. 883, enacted February 12,    1925, codified at 9 U.S.C. ch. 1), more commonly referred to as the Federal Arbitration     Act or FAA, https://www.law.cornell.edu/uscode/text/9.