For years, many businesses have moved toward avoiding the court system for disputes by placing arbitration provisions in their contracts, including employment contracts. Arbitration allows parties to resolve disputes in a private forum and appoint experts to hear the case. Today, the United States Supreme Court issued a decision that will benefit employers by limiting classwide arbitration to those instances where an arbitration agreement expressly authorizes classwide arbitration.
In Lamps Plus, Inc. v. Varela, the plaintiff was an employee of a business that had its employee’s tax information hacked. The hacker later filed a fraudulent tax return in the plaintiff’s name.
The plaintiff sued his employer in a putative class action, meaning that he attempted to bring the suit on behalf of all company employees. The employer invoked the parties’ arbitration agreement and moved to compel arbitration against the plaintiff on an individual basis (i.e., the arbitration would affect only the plaintiff) rather than a classwide basis (one arbitration would affect every employee’s rights). Generally speaking, employees may prefer class litigation in some instances. For example, class litigation allows employees to pursue claims in situations where a single employee’s monetary damages are minimal and would not be worth the time and expense of litigation.
The trial court ordered the parties to submit to classwide arbitration and the Ninth Circuit affirmed. The Supreme Court reversed.
The Supreme Court has often emphasized that the bedrock principle of arbitration is consent. Therefore, the Court previously overturned a decision compelling classwide arbitration when an agreement was silent on the matter. Here, the arbitration agreement was not silent, but rather ambiguous as to whether classwide arbitration was permitted. Certain provisions stated that “all” disputes would go to arbitration, while other provisions were phrased in the singular to refer only to disputes between plaintiff and the employer. The Supreme Court held that this ambiguity required that arbitration be conducted on an individual rather than classwide basis, a major victory for the employer.
The Supreme Court’s decision comes one month after the Kentucky General Assembly changed Kentucky law to permit employers to require their employees to submit to arbitration.
It may be a good time to review your employment agreement in light of these legal developments.