The Fifth Circuit recently joined a majority of its sister circuits in holding that the question of whether arbitration agreements authorize class arbitration should be decided by courts.
In 20/20 Communications v. Lennox Crawford, the Fifth Circuit held that the availability of class-wide arbitration in a Fair Labor Standards Act case is a “gateway issue” of arbitrability. The court reasoned that the fundamental differences between individual and class-wide arbitration required judicial determination as to which approach was available, absent “clear and unmistakable” language in the agreement delegating the decision to the arbitrator.
The plaintiffs in 20/20 Communications had previously been allowed by the arbitrator to pursue their claims on a class-wide basis, despite explicit language in their arbitration agreements that (i) allowed the arbitrator to “hear only individual claims” and (ii) prohibited arbitration “as a class or collective action…to the maximum extent permitted by law.” The arbitrator allowed the class proceeding because he found those provisions illegal under federal law.
The arbitrator’s decision to allow the employees to pursue class claims in arbitration despite express contract language to the contrary demonstrates why employers prefer that courts decide this threshold issue. Arbitrators are not bound by the same decisional principles as courts, and once an arbitrator makes a decision, employers face a significant burden to convince a court to disturb it.
The decision brings the Fifth Circuit into line with the Fourth, Sixth, Seventh, Eighth, Ninth and Eleventh Circuits on the issue of class-wide arbitrations. The Second and Tenth Circuits allow arbitrators to decide whether class arbitration was available in FLSA cases.
The decision also continues a trend of employer-friendly decisions regarding class arbitrations. Earlier this year, the Supreme Court in Lamps Plus v. Varela ruled that class-wide arbitrations should only be permitted if the parties unambiguously consented to class-wide proceedings in their agreement. Before that, the Court held class action waivers in arbitration agreements did not violate the National Labor Relations Act.