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Supreme Court Rules on Class Arbitration in Employment Disputes

New Jersey employment lawsuits can take months or years before getting to trial. Alternative dispute resolution (ADR) offers other ways for litigants to deal with their disputes. Many employment contracts now include clauses stating that employees agree to submit employment-related disputes to arbitration, a type of ADR that resembles a trial, before going to court. The Federal Arbitration Act (FAA) sets standards for arbitration agreements, and establishes limited guidelines for when courts have the authority to vacate or modify “binding” arbitration awards. The U.S. Supreme Court recently ruled on whether an arbitration agreement in an employment contract can require an employer to engage in arbitration with a class of employees, rather than separate proceedings with each employee asserting a claim. The ruling in Lamps Plus, Inc. v. Varela, 587 U.S. (2019), holds that an arbitration agreement must explicitly allow for class arbitration. Courts cannot infer consent to class arbitration from an ambiguous agreement.

In an arbitration, the parties to a dispute choose a neutral third-party arbitrator who acts in a role similar to that of a judge. This process offers the advantage of moving faster than a lawsuit. Its disadvantages often weigh heavier on employees, such as the confidentiality of arbitration proceedings and, in the case of binding arbitration, a lack of further recourse if the arbitrator rules against them. The FAA presumes that any agreement to arbitrate is “valid, irrevocable, and enforceable” as long as it complies with all requirements for an enforceable contract. 9 U.S.C. § 2.

Federal and state civil procedure rules allow large groups of plaintiffs with similar claims against a defendant to join their claims into a single lawsuit, known as a class action. Class arbitration operates on a similar principle, allowing a group of claimants to present their cases together in one proceeding. The alternative is to have each claimant bring their claims individually, with each individual bearing the full cost of doing so. While a well-established set of procedural rules govern class actions, however, class arbitration derives from contractual agreements, such as those between employees and their employer. The Supreme Court ruled that courts cannot compel class arbitration when the arbitration agreement is “silent” on whether the parties have consented to it.

The initial plaintiff in Lamps Plus, an employee of the defendant, filed a putative class action after a hacker fraudulently obtained 1,300 employees’ private taxpayer information. The defendant moved to compel individual arbitration with each claimant, based on the arbitration clause in the plaintiffs’ employment contracts. The district court denied the individual arbitration request, and the Ninth Circuit affirmed that ruling. The appellate court distinguished the case from Stolt-Nielsen by noting that this arbitration agreement was “ambiguous” on the issue of class arbitration, not silent.

The Supreme Court reversed the lower court rulings. It held that the FAA does not allow ambiguity. It cited an earlier case in which it held that “[a]rbitration under the [FAA] is a matter of consent, not coercion.” Because it was not clear that both parties to each individual arbitration agreement had consented to class arbitration, only individual arbitration was available.

If you are involved in a New Jersey or New York employment dispute and wonder whether arbitration or mediation may be a viable alternative to a lengthy trial, please contact the Resnick Law Group at 973-781-1204, at 646-867-7997, or through our website today to schedule a confidential consultation with a member of our team.

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