United States Supreme Court Continues Its Trend of Enforcing Individual Employment Arbitration Agreements

By William R. Hayden

Approximately one year ago, the United States Supreme Court issued its landmark decision in Epic Systems v. Lewis, 548 U.S. ___ (2018), holding that class action waivers contained in arbitration agreements, including agreements between employers and their employees, are permissible and enforceable. See here. That decision left open, however, the question of: what if the arbitration agreement in question is silent, or ambiguous, on whether claims, e.g., wage and hour claims, can be pursued in arbitration on a class basis? 

That question was resolved by the United States Supreme Court on April 24, 2019, in its Lamps Plus v. Varela, No. 17-988, decision. The underlying Federal District Court and Ninth Circuit Court of Appeals had ruled in essence that, if an agreement simply provides that “all employment-related claims are to be resolved through arbitration,” then, under state law contract principles, the agreement should be construed against its author (i.e. the employer), and claims brought on a class basis should proceed to arbitration on a class basis. 

The Supreme Court reversed those decisions, holding that the Ninth Circuit’s reliance on state law contract principles is preempted by the Federal Arbitration Act. Moreover, the Supreme Court noted that class arbitration “sacrifices the principle advantage of arbitration–its informality–and makes the process slower, more costly, and more likely to generate procedural morass than final judgment,” citing the Court’s earlier AT&T Mobility LLC v. Concepcion, 563 U. S. 333 (2011), decision. Consequently, the Supreme Court held that mere silence or ambiguity does not provide a sufficient basis to conclude that the parties to an arbitration agreement agreed “to sacrifice the principle advantages of arbitration.” The Supreme Court noted that individual arbitration is cheaper and quicker than class arbitration, which would be more procedurally complex, more costly, and more time consuming. 

Therefore, the net effect of Lamps Plus is that if an employee has simply entered into an agreement to arbitrate all employment-related claims, then that inherently means he/she has agreed to do so on an individual basis only, and not on a class-wide basis. In theory, the only time a dispute could proceed to arbitration on a class basis would be if the arbitration agreement expressly provides for class arbitration, which is not likely.

Notwithstanding this very favorable outcome, employers should seriously consider incorporating express class action waivers in their employment arbitration agreements.