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All Arbitration, All the Time: Court Agrees to Hear Case on Whether an Arbitration Clause Allows Class Arbitration When the Clause Is Silent on It

As we discussed in a previous post, the Supreme Court recently ruled that employers may enforce class-waiver arbitration clauses in employment agreements and require an employee to arbitrate his claims in individual, as opposed to collective, arbitration proceedings. Hot on the heels of this recent important decision, the Court agreed to hear a case from the Ninth Circuit which addresses a related issue: whether arbitration clauses that are silent about class arbitration can nevertheless be interpreted to permit class arbitration. This may not seem consequential since many companies moving forward will opt to use class action waivers in employment agreements following the Supreme Court’s recent decision, but standard arbitration clauses are often silent on class arbitration, and many of these clauses may remain in effect for years to come. As such, the Supreme Court’s decision on this issue could have substantial implications for employers that use standard arbitration clauses in employment agreements.

This case — Lamps Plus, Inc. v. Varela — came before the Ninth Circuit after the plaintiff brought a class action against his employer Lamps Plus, Inc., and Lamps Plus moved to compel arbitration against only him under an arbitration provision contained in an agreement with the plaintiff. The arbitration provision at issue was silent as to class arbitration. Normally, when interpreting an arbitration provision, the interpreter must give effect to the intent of the parties because the arbitrator’s only authority derives from the powers granted to him in the parties’ agreement. On appeal, the Ninth Circuit found the provision ambiguous and concluded that the silence in the clause did not necessarily foreclose class arbitration even though the arbitration clause at issue does not expressly address class arbitration. In finding the provision ambiguous, the Court explained that under state law interpretation principles required construction against Lamps Plus as the drafter of the agreement.

Depending on how the Court decides this case, there could be far-reaching implications for parties under currently existing arbitration clauses that are silent on class arbitration. If the Court held that provisions silent on class arbitrations naturally allow for class arbitrations, employers who face potential claims which are susceptible to class treatment should consider clarifying this issue by executing new agreements containing a revised arbitration provision. Regardless, companies should consider protecting themselves moving forward by including class waivers in their arbitration clauses. By doing so, a company can avoid the risks of class arbitration by avoiding this issue altogether. 

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.