October 14, 2019

October 14, 2019

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Supreme Court Gives Employers Another Tool to Fend Off Class Actions

Earlier this week, the U.S. Supreme Court held that an arbitration agreement cannot be read as permitting class arbitration unless the agreement clearly and explicitly so provides; it is not enough that the agreement is susceptible to the interpretation that it permits class arbitration. This holding gives employers another tool to fend off class actions and compel alleged class claims to individual arbitration.

The Facts

In 2016, an employee of lighting retailer Lamps Plus allegedly fell victim to a phishing scheme and unwittingly disclosed the tax information of over 1,000 of the company’s employees to the perpetrator of the scheme. The plaintiff in the underlying lawsuit, Frank Varela (“Varela”), was one of numerous employees who had a fraudulent tax return filed in his name in the wake of the incident.

Although Varela had signed an arbitration agreement as part of his employment, he nevertheless filed suit against his employer in federal court in California, seeking to represent a putative class of other Lamps Plus employees. Lamps Plus moved to compel individual arbitration and to dismiss the lawsuit; the district court agreed to compel arbitration, but did so on a classwide basis.

The Ninth Circuit affirmed, finding that the arbitration agreement was ambiguous on the permissibility of classwide arbitration, and applied California’s general rule of contra proferentem to construe contractual ambiguities against the drafter. The Supreme Court granted the employer’s petition for certiorari.

The Decision

In a 5-4 decision, the Supreme Court reversed and held that: “[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.” The majority recognized that permitting arbitration to proceed on a classwide basis fundamentally undermined the benefits of arbitration – “lower costs, greater efficiency and speed.” The Court thus remanded to allow employees to pursue claims regarding theft of their personal nonpublic financial information in individual arbitration.

The decision extends Supreme Court precedents enforcing arbitration agreements despite efforts by plaintiffs to undermine the force of those agreements. Those decisions include Stolt-Nielsen, in which the Court held that a court cannot compel class arbitration when the arbitration agreement in question is “silent”, as well as Concepcion and Epic Systems – which, respectively, upheld the use of class action waivers in consumer and employment arbitration agreements.

Takeaway for Employers 

Lamps Plus is a clear victory for employers. The Supreme Court has now imposed a clear statement rule where class arbitration is concerned: an agreement that is ambiguous or silent as to whether class arbitration is available cannot provide the necessary contractual basis for concluding that the parties agreed to class arbitration. Now, an employee who signs an enforceable arbitration agreement will be bound to arbitrate on an individual basis unless the agreement explicitly authorizes the employee to arbitrate on a class-wide basis. Nonetheless, this case serves as a good reminder for employers to review their arbitration agreements for clarity and to include class action waivers in such agreements.

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About this Author

Irene Rizzi, employment litigation lawyer, Drinker Biddle
Associate

Irene M. Rizzi represents clients in a variety of employment-related disputes including discrimination, harassment, retaliation, wrongful termination, and wage and hour compliance. In addition, Irene counsels employers on pre-litigation matters, conducts trainings and presentations, and assists clients draft, review, and revise employee handbooks, human resources policies, and employee contracts. Irene also advises clients on labor and employment due diligence matters and potential exposure analyses in connection with corporate transactions and...

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Mark D. Taticchi, Drinker Biddle, white collar investigations lawyer, criminal matters attorney
Associate

Mark D. Taticchi litigates complex commercial and appellate issues at the local, state, and federal levels. He also assists with white collar investigations and defending clients in criminal matters.

His experience includes briefing and arguing appeals; investigating alleged violations of federal regulations; drafting motions; and filing formal bid protests on behalf of clients. He also counsels clients on allegations of unfair and deceptive trade practices, consumer fraud, product misrepresentation, and the Foreign Corrupt Practices Act.

Mark served as a law clerk to United States Supreme Court Justice Anthony M. Kennedy and to the Hon. Sandra S. Ikuta of the U.S. Court of Appeals for the Ninth Circuit.

215-988-2987
Partner

Kristin Ann Shepard focuses on the defense of insurance companies and other financial institution clients in high-stakes litigation in state and federal trial and appellate courts. She has defended financial services companies in nationwide class actions, multidistrict litigation, and market conduct litigation, including underlying claims of consumer fraud, unfair insurance practices, RICO, and various common law torts. Kristin also has defended corporate-owned life insurance (COLI) carriers in litigation by policyholders and insureds, and advised clients on related tax...

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