April 25, 2019

United States Supreme Court Limits Class Arbitration

On April 24, 2019, the United States Supreme Court held that the Federal Arbitration Act (“FAA”) bars orders requiring class arbitration when an agreement is ambiguous about the availability of such a procedure. Lamps Plus v. Varela, 587 U.S. __ , 2019 WL 1780275, (2019). In Lamps Plus, the Court clarified a 2010 case in which it held that a court may not compel arbitration on a class-wide basis when an agreement is silent on the availability of class arbitration. Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662, 687 (2012).

In Lamps Plus, a 5-4 decision authored by Chief Justice Roberts, the Court explained that because the FAA envisions the use of traditional individualized arbitration, a party cannot be forced under the FAA to submit to class arbitration unless the parties explicitly agreed to do so. Because class arbitration does not share the benefits of traditional arbitration — lower costs, greater efficiency and speed, and the parties’ choice of a neutral — the FAA requires more than an “ambiguous” agreement to show that the parties bound themselves to arbitrate on a class-wide basis. Unlike individualized arbitration, or even traditional class actions, class arbitration raises serious due process concerns because absent class members will have limited judicial review. Based on these critical differences between individual and class arbitration, the Court reiterated in Lamps Plus that “courts may not infer consent to participate in class arbitration absent an affirmative contractual basis for concluding that the party agreed to do so.”

The Court also declined to apply California’s anti-drafter canon in interpreting the arbitration provision-a position urged by Justice Kagan in dissent. The anti-drafter canon resolves contractual ambiguities against drafters when a provision is ambiguous after the court exhausts all ordinary methods of interpretation. The Court did not apply the anti-drafter canon because doing so would allow class arbitration without first obtaining parties’ consent.

What Employers Should Know

After Lamps Plus, employers will have a strong argument to avoid class arbitration unless they clearly agree to do so. To be on stronger grounds, if employers want to avoid class arbitration, they should make sure their arbitration agreements allow only for individualized arbitration. Moreover, employers wanting to avoid class arbitration would be wise to include a “not construed against drafter” clause in their arbitration agreement with employees. Contact Payne & Fears LLP if you have questions about this ruling or implementing arbitration agreements, generally, in your workplace.