SCOTUS Delivers Employer-Friendly Arbitration Decision

Employers received some clarity yesterday when it comes to using arbitration agreements as the the U.S. Supreme Court handed down a 5-4 ruling in an important workplace-arbitration case, Lamps Plus Inc. v. Varela.

In the case, the Court’s conservative majority decided that employees working for Lamps Plus, based in California, could not, as a group, seek compensation for their contention that Lamps Plus failed to protect employee data.

The Supreme Court’s majority opinion, authored by Chief Justice John Roberts, held that under the Federal Arbitration Act, class-wide arbitration cannot be compelled by a court unless an agreement expressly states the availability of such arbitration. In short, workers are not entitled to resolve disputes through class arbitration in cases where their arbitration agreement is “ambiguous.” Employment law experts had earlier predicted that, based on questioning by conservative justices, this case would probably swing this way for employers.

According to employment-law experts, Lamps Plus v. Varela continues a trend of rulings allowing employers to use arbitration provisions to prevent both class actions in court and class-wide arbitration proceedings. This latest case began in 2016 after a hacker stole tax filings of about 1,300 Lamps Plus workers. One of those employees, Frank Varela, ended up with a fraudulent tax return filed in his name and sued his employer, asking that his suit be considered a class action as opposed to individual litigation.

Richard Alfred, a Seyfarth Shaw employment litigation partner, calls the ruling “a big victory” for the large number of employers that maintain arbitration agreements with common clauses that simply invoke arbitration as the proper forum for resolving employment disputes – without an express statement including class or collective arbitration in that mandate.

“In such circumstances, there is no longer any question that only individual, not class or collective arbitration, may be allowed as a result of today’s Lamps Plus decision,” he explains.

According to Alfred, the court made clear that a shift from individual to class arbitration is a “fundamental” change to arbitration proceedings envisioned by the Federal Arbitration Act. Under the FAA, an agreement that is “ambiguous” as to whether the parties agreed to class arbitration—like an agreement that is silent on that issue—cannot be the basis for compelling the parties to class arbitration.

“Courts may not infer consent to class arbitration absent an express agreement to do so,” Alfred says.

John Lewis, a Cleveland-based partner with BakerHostetler, said that while the decision is of less importance in an environment where class action waivers are routinely used, it did resolve concerns about the court’s jurisdiction to review a decision where arbitration was granted—just not on an individual basis.

“[I]t demonstrated that a state-contract construction principle could not bypass the FAA requirement that arbitration is a matter of consent,” he said. “Nothing indicated that Lamps Plus consented to class arbitration.”