Employment Law

US Supreme Court Strengthens Employers’ Ability to Use Arbitration Agreements to Prevent Class Action Litigation

By Thomas Daugherty

In the case of Lamps Plus v. Varela, the United States Supreme Court gave employers another win in using arbitration agreements to block class action litigation. The Court held that a party cannot compel class arbitration of claims when an arbitration agreement is ambiguous as to class arbitration. 

An employee of Lamps Plus filed a class action lawsuit against his employer after a fraudulent federal income tax return had been filed in his name as a result of a data hack and the release of the tax information of approximately 1,300 employees. Lamps Plus moved to compel arbitration of the employee’s individual claims under the company’s arbitration agreement, and dismiss the class action lawsuit. The federal District Court compelled class arbitration of the claims. Lamps Plus appealed to the Ninth Circuit Court of Appeals, which affirmed the lower court’s decision, holding that the arbitration agreement was ambiguous as to the arbitration of class claims, and that as such, the ambiguities should be construed against the employer, which drafted the agreement. 

The Supreme Court reversed and held that an ambiguous agreement cannot be the contractual basis for compelling class arbitration: courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis. The Supreme Court reasoned arbitration is strictly a matter of consent, and that class arbitration is markedly different from individualized arbitration, and would undermine the most important benefits of individualized arbitration–its informality—and would make the process slower, more costly, and more likely to generate procedural morass than final judgment. 

As a result of the Supreme Court’s ruling, if class arbitration of claims is to be allowed, the arbitration agreement must expressly provide for it in unambiguous terms. This would seem to foreclose another potential avenue toward class action claims through arbitration agreements. 

Employers should consider whether an arbitration agreement with each employee may be right to help resolve future disputes on an individual, rather than classwide basis. If you have questions about whether an arbitration is right for your business, or whether your arbitration agreement is up to date, contact the Klinedinst employment team.

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