Supreme Court Limits Reach of Class Arbitration

by Doug Chartier

Class arbitration is a rare proceeding in employment disputes. Thanks to a recent U.S. Supreme Court decision, it will likely stay that way.

On April 24, the Supreme Court held in Lamps Plus v. Varela that courts can’t compel parties to classwide arbitration, as opposed to individual arbitration, unless their agreement specifically allows for it. The 5-4 decision, which fell across the Supreme Court’s conservative-liberal divide, upheld its 2010 precedent that “an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration.”

Employment attorneys say that while the decision is favorable to employers, they still need to think about whether they would really prefer individual arbitration to class litigation in certain cases.

Light fixture retailer Lamps Plus and its employees fell victim to a phishing scheme that compromised the tax information of 1,300 of its workers. When one of the employees, Frank Varela, discovered that a false tax return was filed in his name, he sued his employer in federal court. Varela brought the claims on behalf of a putative class of employees, but Lamps Plus moved to have the claims arbitrated, pointing to the mandatory arbitration agreement that Varela and other employees had signed. The district court pushed the claims into arbitration, but for the putative class rather than the individual arbitration that Lamps Plus wanted.

The 9th Circuit Court of Appeals affirmed. Lamps Plus argued that its arbitration agreement didn’t expressly allow for classwide arbitration as an option and that under the Supreme Court’s precedent in Stolt-Nielsen v. AnimalFeeds, a court can’t compel class arbitration when an agreement is silent on that proceeding. But the appellate court found that the agreement was “ambiguous” on the matter of class arbitration. It then gave priority to California’s state law that says ambiguous contract clauses should be interpreted in favor of the non-drafter — in this case, the plaintiff employee class.

To read this story and other complete articles featured in the May 6, 2019 print edition of Law Week Colorado, copies are available for purchase online.