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Supreme Court Says Class Arbitrations Not Allowed Absent Specific Agreement

    Client Alerts
  • April 30, 2010

Many employers require that employees sign mandatory arbitration agreements as a condition of employment. These agreements state that any dispute between the parties shall be settled through binding arbitration, and not through the court or jury process. Some employers believe that the arbitration process avoids seemingly arbitrary jury verdicts prevalent in some parts of the U.S.

Federal courts have consistently upheld the use of mandatory arbitration agreements under the Federal Arbitration Act (FAA). Last week, however, the U.S. Supreme Court refused to allow class arbitration of claims where no such contingency was included in the arbitration agreement. Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp. involved a commercial dispute between a maritime shipping carrier and a number of its customers. The charter agreement contained an arbitration provision, but did not mention class arbitration of claims. The arbitrator assigned to the case attempted to consolidate the customers' claims into a single class arbitration. Those customers objected, preferring individual hearings on their claims.

The Supreme Court held 5-3 against imposition of class arbitration. Absent clear consent in the arbitration agreement, a party cannot waive its right to an individual arbitration of its claims. The FAA does not contain any provisions that would lead to a different result.

For employers, this ruling can be a double-edged sword. Employers that prefer that employee multiple claims be heard in a class arbitration for reasons of efficiency should clearly include this alternative in their arbitration agreements. Some employers would prefer to individually litigate employment claims rather than in a class context, and should therefore remain silent on this point, or even include language in the arbitration agreement that precludes class arbitrations.