In a five-to-four decision, the U.S. Supreme Court just issued an important ruling on arbitration in favor of employers. On April 24, 2019, in the case of Lamps Plus, Inc, v. Varela,the Court held that under the Federal Arbitration Act, class arbitration can only be compelled if it is specifically agreed to in the arbitration agreement itself.
In the Lamps Plus case, the employer suffered a data breach as a result of a hacker and the tax information of approximately 1,300 employees was disclosed. A California employee sued Lamps Plus on behalf of himself and all similarly situated employees in federal court for the breach. Lamps Plus sought to enforce individual arbitration under the arbitration agreement that employees entered into as part of their employment. The District Court rejected the request for individual arbitration, and instead ordered class arbitration. Lamps Plus appealed, and the Ninth Circuit upheld the order for class arbitration on the basis that: 1) Lamps Plus drafted the arbitration agreement; 2) the agreement was ambiguous as to whether class claims were allowed; and 3) under California contract law, any ambiguity in a contract must be read against the drafting party.
In overturning the Ninth Circuit, the U.S. Supreme Court ruled that ambiguity in the arbitration agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration. The Court stated that, “… it is important to recognize the ‘fundamental’ difference between class arbitration and the individualized form of arbitration envisioned by the Federal Arbitration Act. Class arbitration ‘sacrifices the principal advantage of arbitration –its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.’” (Internal citations omitted.) Because of the crucial differences between class and individual arbitration, the Court ruled that an explicit contractual agreement to compel class arbitration is required.
The Lamps Plus case is a win for employers with arbitration agreements in place, as it allows for the avoidance of costly and time-consuming class-action litigation. However, only arbitration agreements based on the Federal Arbitration Act, not California law, will benefit from this decision.
If you are interested in implementing an arbitration agreement or want to confirm that your existing agreement falls under the Lamps Plus protection, please contact the Holden Law Group.