The Supreme Court All But Ends Classwide Arbitration, Delivering A Win For Employers

When most employers think about arbitration with their employees, they think about arbitrating the claims of one employee at a time. The U.S. Supreme Court agreed this week in Lamp Plus, Inc., et al. v. Varela, deciding that parties cannot be compelled to arbitrate class actions unless the arbitration agreement explicitly calls for class arbitration (something that virtually no arbitration agreement does). The 5-4 decision held that “Courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.”

This is good news for employers seeking to avoid class claims in arbitration, and continues the trend in favor of enforcing individual arbitration over class proceedings. For example, last year the Court gave the green light for employers to include class-action waivers as part of arbitration agreements. Now, such a waiver is not required to avoid a class arbitration, as long as your employee has signed an arbitration agreement that doesn’t explicitly provide for class arbitration.

Employers who have already implemented arbitration programs should rest easier that their agreements will be enforced as intended, even in the absence of explicit class waivers. Employers considering whether to require employees to sign arbitration agreements should continue to weigh the pros and cons of doing so, but can now do so without the risk of a class action in arbitration.

Employers who implement arbitration programs tend to favor arbitrating claims on an individual basis for the same reasons the Lamps Plus majority cites — “lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.” Increasingly, however, realizing such benefits can be less certain, as some (but certainly not all) arbitrators may be persuaded to allow costly discovery and delays that deprive the parties of the advantages arbitration promises. Now, while some creative plaintiffs’ attorneys may inevitably continue to challenge arbitration agreements to try to avail themselves of the class device, others may attempt to leverage the financial risks to an employer of multiple individual arbitration proceedings, such as the costs of arbitrators and arbitration administrators. Of course, employers are often better positioned and more willing to arbitrate multiple individual cases and, in implementing their arbitration agreements, have already accepted the costs of arbitration and thus are not influenced by such costs in any individual proceeding.

The bottom line: as always, there are pros and cons to requiring employees to arbitrate. Every employer should thoughtfully make such a decision, understanding the impact on its particular workforce. But at least now, the risk of unintended class arbitration need not influence such an evaluation.