This week, the Supreme Court again addressed arbitration agreements of employment claims. Lamps Plus, Inc. v. Varela, No. 17-988 (4-24-19). The plaintiff employee brought a class action based on a breach of the HRIS system by a hacker and subsequent filing of fraudulent tax returns by identity thieves. The employer moved to compel the arbitration agreement signed by the plaintiff, which provided for individual arbitration and made no reference to class action arbitration. The trial and appellate courts compelled only class action arbitration and the employer appealed. The Court reiterated that arbitration is a matter of contractual consent and courts cannot insert terms into the agreements that are fundamentally inconsistent with simple and expedient arbitration. The Court had previously held that class action arbitrations could not be compelled where the agreement was silent on that issue. In this case, the Court held that class arbitrations could not be compelled from an ambiguous agreement either: “Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[] the principal advantage of arbitration.’” In other words, “[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.”
The Court had previously rejected attempts to force class claims into arbitration “unless there is a contractual basis for concluding that the party agreed to do so,” because class arbitration fundamentally changes the nature of the “traditional individualized arbitration” envisioned by the FAA. Epic Systems Corp. v. Lewis, 584 U. S. ___, ___ (2018) (slip op., at 8); Stolt-Nielsen S. A. v. Animal Feeds Int’l Corp., 559 U. S. 662 (2010). Nonetheless, even though the arbitration agreement at issue made no reference to class action arbitration (and was silent on that issue), the Ninth Circuit distinguished this case from Stolt-Nielsen on the grounds that the parties had not stipulated to the “silence.” Applying state law, the Ninth Circuit construed the agreement of adhesion against the drafter (i.e., the employer) and found the agreement to be “ambiguous” because it explicitly covered employment claims (which could be subject to class action treatment) and did not explicitly exclude class actions. Under California law, agreements susceptible to two interpretations are treated as ambiguous and courts may imply terms based on public policy.
The Court noted that class actions constitute a fundamental change in the nature of arbitration and cannot be implied as a term without agreement of the parties. Arbitration is a matter for contractual consent and not coercion: “Parties may generally shape such agreements to their liking by specifying with whom they will arbitrate, the issues subject to arbitration, the rules by which they will arbitrate, and the arbitrators who will resolve their disputes.”
Courts enforce the intent of the parties when compelling arbitrations and do not imply terms that were not consented to by the parties.
In carrying out that responsibility, it is important to recognize the “fundamental” difference between class arbitration and the individualized form of arbitration envisioned by the FAA. . . . . In individual arbitration, “parties forgo the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes. . . . . Class arbitration lacks those benefits. It “sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.
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For example, we presume that parties have not authorized arbitrators to resolve certain “gateway” questions, such as “whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy.” . . . Although parties are free to authorize arbitrators to resolve such questions, we will not conclude that they have done so based on “silence or ambiguity” in their agreement, because “doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
