Supreme Court Reaffirms That Class Arbitration May Not Be Ordered Unless the Arbitration Agreement Clearly Allows for It
The United States Supreme Court recently issued its opinion in Lamps Plus v Varela, holding that a class action may not be ordered to arbitration unless the parties’ arbitration agreement expressly states that class claims may be arbitrated. In so holding, the Court overruled the Ninth Circuit’s contrary ruling that had ordered the parties to arbitrate the plaintiffs’ class claim. The Ninth Circuit’s ruling was based on its determination that the arbitration agreement was “ambiguous” as to whether class claims could be arbitrated and, as a matter of traditional contract law, ambiguities are resolved against the drafter of the agreement (in this case, the employer). Rejecting the Ninth Circuit’s reasoning, the nation’s high Court held that under the Federal Arbitration Act, arbitration is purely a matter of agreement between the parties and that parties to an arbitration agreement cannot be ordered to arbitrate claims that they did not clearly agree to arbitrate. Moreover, ambiguity cannot be used to imply that the parties agreed to arbitrate class claims in arbitration because class litigation is not the type of action that is suitable for the streamlined adjudication process traditionally associated with the arbitral forum.
The Supreme Court’s Lamps Plus decision really is no surprise. It is wholly consistent with prior Supreme Court precedent in Stolt-Nielsen v. AnimalFeeds International, in which the Court similarly held, almost a decade ago, that parties to an arbitration agreement may not be compelled to arbitrate class claims unless their agreement clearly evidences that they intended such claims to be subject to arbitration. Even though Supreme Court precedent clearly holds that silence or ambiguity in an arbitration agreement cannot be a basis for concluding that the agreement covers class claims, the lower court decisions in the Lamps Plus case shows that certain courts are still trying to find ways to get around favorable Supreme Court precedent on this issue. It is, therefore, prudent to expressly state in an arbitration agreement that class, collective, and/or representative claims may not be arbitrated and that no arbitrator shall have authority to preside over any arbitration on a class, collective, and/or representative basis on behalf of more than one employee.