California Employment Law Blog

Ambiguous Arbitration Agreements?: SCOTUS Holds that Ambiguity is Sufficient to Compel Class Arbitration

Posted by Timothy B. Del Castillo | Apr 30, 2019 | 0 Comments

lamp shade

The United States Supreme Court issued a highly-anticipated ruling in an employment matter last week. 

In 2016, a hacker tricked an employee of Lamps Plus, Inc., into disclosing tax information of over 1,000 company employees. After a fraudulent federal income tax return was filed in the name of Frank Varela, a Lamps Plus employee, Varela filed a putative class action. Lamps Plus moved to compel arbitration on an individual basis based on an arbitration agreement Varela signed when he was employed.  The arbitration agreement was ambiguous as to whether class action claims could go forward in arbitration.  Of course, the employer wanted the arbitration to proceed on an individual basis only.  

An earlier decision from the Supreme Court had held that where an arbitration agreement is silent on the issue of class arbitration, arbitration must proceed on an individual basis.  Stolt-Nielsen SA. v. AnimalFeeds Int'l Corp., 559 U. S. 662.  The Ninth Circuit Court of Appeals in the Lamps Plus case distinguished the Stolt-Nielsen case on the ground that the arbitration agreement was not "silent," it was "ambiguous."  Following California's rule that contractual ambiguities are to be construed against the drafter of the contract, the Ninth Circuit held that therefore the arbitration agreement permitted claims to proceed on a class-wide basis.  

Unsurprisingly, given the current composition of the Supreme Court, the justices reversed the Ninth Circuit in a 5-4 decision.  The opinion was authored by Chief Justice John Roberts and explained that arbitration is fundamentally a matter of consent.  Unless a party clearly consented to arbitrate class claims, it cannot be compelled to do so.  Essentially, arbitration agreements that are ambiguous on whether class claims can be arbitrated are as good as arbitration agreements with express class waivers.  California employers, however, should still play it safe and include express class waivers if they would like to implement arbitration agreements for the purpose of avoiding class actions.  It may be only a matter of time before a different California judge, or the Ninth Circuit, finds another limitation on arbitration agreements.  

About the Author

Timothy B. Del Castillo

Tim practices employment law in California and represents both employees and employers in federal and state courts, administrative hearings, arbitrations, mediations, and in direct negotiations. Tim also offers advice and counsel and training to businesses to help them achieve compliance with California employment laws.

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