U.S. Supreme Court Ruling on Arbitration Agreements Is a Win for Employers

Almost a year ago the U.S. Supreme Court affirmed the enforceability of class action waivers in arbitration agreements between employers and employees (see Epic Systems Corp. v. Lewis https://www.scotusblog.com/case-files/cases/epic-systems-corp-v-lewis). Last week the Court issued an opinion that further solidified the enforceability of class action waivers in the employment context.

In Lamps Plus, Inc. v. Varela, a 5-4 decision issued on April 24, the Court held that arbitration may proceed as a class basis only if the arbitration agreement explicitly provides for such a process. Employers utilizing arbitration agreements should almost never include language allowing for class-wide arbitration.

The factual background of the Lamps Plus decision shows how employee-employer arbitration agreements can be very useful. A hacker tricked an employee of Lamps Plus into disclosing the tax information of about 1,300 Lamps Plus employees. The hacker then used that information to file fraudulent federal tax returns in the name of some of these employees. One of the employees filed a class action lawsuit on behalf of himself and other Lamps Plus employees against the Company in Federal Court. Lamps Plus asked the court to compel arbitration on an individual basis and to dismiss the suit because the Plaintiff and each of the proposed class members had all signed an arbitration agreement.

The District Court and the Court of Appeals agreed that arbitration was the correct forum and dismissed the suit, but ruled that the Plaintiff could arbitrate his claims on a class-wide basis because the arbitration agreement at issue was vague about whether the matter could proceed in arbitration as a class. The language at issue in the arbitration agreement stated that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment”—. The District Court and the Court of Appeals determined that this language was ambiguous on the issue of class-wide arbitration and, under the principals of contract interpretation, because Lamps Plus drafted the agreement, the ambiguity had to be resolved against the Company and in favor of the employees.

Lamps Plus petitioned the Supreme Court to hear this case, which it did. The Supreme Court held that an ambiguous agreement does not provide a sufficient basis to conclude that the parties to the agreement consented to class arbitration. Accordingly, the Court reversed the Court of Appeals decision and remanded for further proceedings, concluding that “[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.”

Justices Ginsberg and Kagan dissented from the opinion, each writing that the agreement was unfair, ambiguous and should be interpreted against the drafter, Lamps Plus, to allow class arbitration.

Take Away for Employers:

While the Lamps Plus decision is a good one for employers, don’t force a court to construe an ambiguous arbitration agreement. Take a minute and make sure that your arbitration agreement is clear. If you are not currently using one, you may want to consider doing so. While employment arbitration agreements are not a cure-all, the will certainly give you a good chance to stop any employment-related class action in its tracks.

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