By Robert Horton
Can a party to an arbitration agreement be required to participate in class arbitration? The Supreme Court ruled on April 24, 2019 that it cannot, unless an agreement to do so is clearly stated.
In Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp, the Supreme Court decided in 2011 that “silence” in an arbitration agreement regarding class arbitration meant that a party could not be compelled to engage in class arbitration. In the more recent case of Lamps Plus, Inc. v. Varela, an employee tried to compel his employer to arbitrate on a class basis claims arising out of the release personal data belonging to employees.
Supreme Court: Class Arbitration Requires Clear Consent by the Parties
The Ninth Circuit had held in the Lamps Plus case that ambiguity regarding class arbitration would be construed against the drafter of the arbitration agreement (the employer in this case) and ordered the employer to arbitrate on a class basis. But the Supreme Court reversed, noting, as it had in Stolt-Nielsen, that class arbitration is fundamentally different than arbitration directly between the parties as it sacrifices both the informality and, therefore, the efficiency of individual arbitration. The Supreme Court held, therefore, that a party to an arbitration agreement may be compelled to engage in class arbitration only when the parties have clearly consented to do so.
Employers Must Understand State Laws around Arbitration Agreements
Despite this favorable ruling, employers must still be cautious when drafting arbitration agreements. Some states have recently limited the scope of arbitration agreements between employers and employees, particularly with respect to sexual harassment claims.
The legislatures of Maryland, New York and Vermont have each enacted statutes prohibiting mandatory arbitration of claims of sexual harassment (indeed, the Maryland statute declares such arbitration agreements to be unenforceable, regardless of whether the employee voluntarily entered into the agreement), but only to the extent permitted by federal law. That very issue of whether the states can prohibit arbitration agreements with respect to sexual harassment (or any other specific claim) without running afoul of the Federal Arbitration Act has not yet been specifically addressed by the courts.
New Jersey has a new statute prohibiting mandatory arbitration of any claims related to unlawful discrimination, retaliation or harassment. The California legislature passed a bill with similar prohibitions (although the bill actually criminalized employer conduct in requiring such arbitration agreements) but it was vetoed by Governor Brown in September 2018.
So, employers may still face some legal uncertainty when it comes to arbitration agreements rolled out on a nation-wide basis, despite the Supreme Court holding:
1) Mandatory arbitration agreements with class action waivers in the employment setting do not violate the National Labor Relations Act and must be enforced.
2) Silence regarding class action arbitration in an arbitration agreement means that an employer cannot be required to arbitrate on a class basis.
Lessons for Rolling Out Arbitration Agreements
Many recent cases have focused on whether the employer can prove that the employee signed the arbitration agreement, despite being able to produce a signed copy of the agreement. Employees either “don’t remember” signing the agreement or “don’t believe the signature is their signature”, etc. Employers must be thoughtful about how, in the event of litigation, they will establish that an employee actually signed the agreement.
Earlier this year, the federal district court for New Jersey determined in Horowitz v. AT&T, Inc. that employees who received notice of an arbitration agreement that required them to “opt-out” by “electronically registering” their decision to opt-out was enforceable in the absence of such an opt-out decision having been registered.
However, a California appellate court, in Garcia v. Tropicale Foods, Inc., refused in January to enforce a signed arbitration agreement because the “bare statement” of the human resources coordinator was insufficient evidence to enforce the agreement without supporting details regarding such signature having taken place.
Some courts, such as the Hawaii federal district court in December 2018’s Khosravi-Babadi v. Hawaiian Telecom, Inc., have invalidated arbitration agreements when the agreements don’t comply with state law requirements regarding mutuality of obligations because the employer was not required to arbitrate claims along with the employee.
The identity of the actual parties to the arbitration agreement can also be important. A California appellate court held in Castrejon v. CCS Orange County Janitorial in January 2019 that employees of a janitorial company did not have to arbitrate their wage claims because their arbitration agreements were with the parent company of the janitorial company.
Class Actions Waivers Don’t Necessarily Solve All Problems
Employers should always remember that arbitration agreements with class action waivers (or even silence regarding such) don’t necessarily make an employer immune to extraordinarily expensive litigation involving large numbers of employees.
Recent media reports have indicated that while some employers have avoided class action lawsuits, they were required to arbitrate hundreds of similar claims by employees and, of course, incurred the associated arbitration costs.
The lesson here for employers contemplating the institution of arbitration agreements in the workplace is to be mindful that while certainly an employer will be relieved at having arbitration agreements in place when served with a class action lawsuit, the employer could still face expensive and time consuming litigation in the form of multiple arbitrations regarding the same issue.
Bass, Berry & Sims
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www.bassberry.com