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U.S. Supreme Court Says Arbitration Agreements Exclude Class Arbitration Absent Consent

    Client Alerts
  • May 06, 2019

In last year’s Epic Systems decision, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) allows mandatory arbitration agreements that preclude class or collective action claims. In other words, a party to the agreement can be required to individually arbitrate the claim regardless of whether this makes such claim feasible. On April 24, the Supreme Court went a step further, concluding that an arbitration agreement that is ambiguous on the issue of class arbitration cannot be interpreted to allow such claims.

In Lamps Plus, Inc. v. Valero, employees filed a class action lawsuit after their tax information was exposed due to a hacking incident. The district court dismissed the lawsuit in favor of arbitration but allowed the matter to proceed as a class arbitration due to ambiguous language in the agreement regarding the availability of class proceedings. The Ninth Circuit affirmed this decision, concluding that the ambiguity should be interpreted against the party that drafted the arbitration agreement, in this case the employer.

In a 5-4 decision, the Supreme Court reversed the Ninth Circuit. The court’s conservative majority held that the FAA supersedes conventional law regarding the interpretation of contracts. For arbitration agreements, the FAA favors individual arbitration in all cases absent specific consent by the parties to a class proceeding.

In recent years, most mandatory arbitration agreements used with employees contain standard language disclaiming any right to class arbitration. Based on this decision, even if that language is not included in an agreement, courts must interpret it to restrict arbitration to the employee’s individual claims.