Clyde Snow

Class Claims Not Allowed in Arbitration Unless Expressly Authorized

by | Apr 24, 2019

Earlier today, the U.S. Supreme Court held in Lamps Plus Inc. v. Varela (No. 17-988) that when an arbitration agreement covers the subject-matter of a dispute, the plaintiff’s claims may be arbitrated only on an individual basis unless the agreement expressly permits arbitration of class claims. As a practical matter, this means that most arbitration agreements also operate as class action waivers.

In Lamps Plus Inc. v. Varela, the plaintiff sued his employer after the personal information of approximately 1,300 employees was wrongly released in a data breach. Varela asserted class claims on behalf of all affected employees. Based on an arbitration agreement Varela signed when he started work at Lamps Plus, the trial court dismissed his claims but held that the class claims could be asserted in arbitration. Lamps Plus appealed this decision, maintaining that arbitration should be limited to Varela’s individual claims.  

The question on appeal centered on the fact that the language of the arbitration agreement did not directly address whether the employee could bring a class action. Rather, the agreement stated generally that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to [Varela’s] employment.” The Ninth Circuit found this language to be ambiguous and construed it against Lamps Plus as the drafter of the document, with the result that Varela be permitted to assert class claims in arbitration. However, the Supreme Court rejected the Ninth Circuit’s approach, holding that when parties consent to arbitration, they are consenting to individual arbitration unless otherwise indicated. Ambiguous language, like that of Varela’s arbitration agreement, “does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to sacrifice the principal advantage of arbitration,” namely, “its informality.” (Lamps Plus, Inc. v. Varela, Majority Slip Opinion at p. 8, quoting Concepcion, 563 U.S. at 348.)

In dissent, Justice Kagan criticized the majority opinion for depriving Varela of any ability to bring class claims in any venue, based on an arbitration agreement that “carries no hint of consent to surrender . . . the ability to bring a class proceeding.” (Id., Kagan, J., dissenting, at p. 2.)

Although this opinion will likely generate significant policy and jurisprudential debate, the practical result for employers is straightforward: Your existing arbitration agreements likely serve as class action waivers even if they do not say so expressly.

If you have questions about this decision or any other employment law matter, please contact Ms. McNeill at slm@clydesnow.com or any of the attorneys in Clyde Snow’s Labor & Employment Group at 801.322.2516.

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