Recently, the United States Supreme Court decision Lamps Plus, Inc. v. Varela ruled that an arbitration agreement may not allow for arbitration of class action cases against an employer if it is determined to be ambiguous.
If your arbitration agreement does not specifically allow for class-wide arbitration in such matters, a court will not enforce an arbitration agreement to permit class-wide arbitration. The Court’s rationale is:
1) if an employee and an employer consent to use arbitration to adjudicate claims arising from the employment relationship, the parties have not necessarily agreed to adjudicate claims on behalf of a class unless the agreement specifically provides for it; and
2) the right to proceed with class-wide arbitration will not be “inferred” absent the clear intent of the parties.
What does this mean for you?
The Supreme Court’s ruling in Lamps Plus, Inc. v. Varela is a win for employers. All employers should have their arbitration agreements updated to include a clause stating that the availability of class arbitration is a “question of arbitrability” for the courts to decide.
In Lamps Plus, Inc. v. Varela , the Supreme Court specifically refused to decide the question of whether the availability of class-wide arbitration is a “question of arbitrability.” In its decision, the Supreme Court noted that the parties had agreed that a court, not an arbitrator, should resolve the “question of arbitrability” about class action arbitration. “In the absence of contractual language that the availability of class-wide arbitration is a “question of arbitrability” for a court to decide, a plaintiff could petition an arbitrator to decide the issue of class-wide arbitration, which may not be immediately subject to review by a state or federal court. An employer’s arbitration agreement should be clear that the “question of arbitrability” should be one resolved by a Court.
Does the new Supreme Court Ruling Apply to Wage and Hour Class Actions?
Yes. The Supreme Court ruling applies to wage and hour class actions, not just consumer class actions.
In Lamps Plus, Inc. v. Varela the plaintiff, Frank Varela, filed a class action complaint against Lamps Plus, Inc. in federal district court. The plaintiff alleged that his employer, Lamps Plus, had been the victim of a phishing scam, and had inadvertently released the plaintiff’s personal information to an outside third party. Lamps Plus filed a motion to compel arbitration based on the arbitration agreement between plaintiff and Lamps Plus. The Supreme Court found that ambiguous language, that “the Company and I mutually consent to the resolution by arbitration of all claims that may hereafter arise in connection with my employment,” did not specifically include class-wide claims, and therefore, could not provide a basis for class-wide arbitration by the plaintiff. The Supreme Court held that “[l]ike silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to sacrifice the principal advantage of arbitration.”
If your arbitration agreement is silent, or in unclear regarding class action arbitration and the “question of arbitrability,” we recommend an immediate review and revision to conform to the ever-changing law in this area.
Daniel J. O’Neil- Ortiz is the newest member of Hunt Ortmann’s Employment Law Group. JoLynn M. Scharrer is a shareholder at Hunt Ortmann and leads the firm’s Employment Law Group and Insurance Group. Our team is ready to undertake an immediate review of your arbitration agreement, or any other important documents to keep your business protected, including employee handbooks, employee/ independent contractor agreements, non-disclosure agreements and new employee packages. Please contact us at employment@huntortmann.com.