The Supreme Court ruled on Wednesday that a court cannot force class arbitration unless both the employer and the employee clearly agreed to class arbitration.
In Lamps Plus, Inc. v. Varela, Frank Varela found out his employer Lamps Plus had been hacked and his tax information stolen, resulting in a fraudulent tax return filed in his name. Varela sued his employer in California federal district court for poor data practices. He brought a class action lawsuit for himself and the 1,300 other employees affected by the hack.
Lamps Plus moved to compel the case to individual, instead of class, arbitration in light of an arbitration clause in the employment agreement. The district court agreed to send Varela’s case to arbitration, but rejected Lamps Plus’s request to dismiss his class claim. Lamps Plus appealed the district court’s decision to authorize class arbitration and the Ninth Circuit affirmed. Applying California contract law, the Ninth Circuit reasoned that since the contract was ambiguous and Lamps Plus had drafted the clause, any ambiguities should be construed against Lamps Plus and allowed the case to proceed as a class arbitration.
The Supreme Court reversed the Ninth Circuit. The Court followed its previous Federal Arbitration Act (FAA) decisions in emphasizing that arbitration can only proceed where the parties have agreed to arbitration. The Court pointed to arbitration’s procedural advantages as a reason to infer actual consent by the parties, but in cases involving class arbitration, the procedural advantages typical of arbitration disappear in the class setting and create the potential for “procedural morass” instead. For this reason, the Court has looked for clear agreement in class arbitration cases.
For instance, in Stolt-Nielsen in 2010, the Court held that a court could not interpret silence on class arbitration to allow class treatment of individual claims. Similarly, in cases like Concepcion in 2011 and Epic Systems in 2018, the Court repeated that arbitration only has power through consent and, therefore, parties could both agree to arbitrate claims and to waive class arbitrations without violating any state or federal laws. Here, the Court placed similar emphasis on actual consent and since the Court could not identify a clear agreement to allow class arbitration, it held that such ambiguity, much like silence, did not show a clear agreement to allow class arbitration.
This decision is a big win for employers seeking to avoid class arbitrations and sent a clear message that silence or ambiguity is not the same as consent and consent is needed before a class arbitration can proceed.