Another broad pro-arbitration ruling from the Supreme Court

The employees at Lamps Plus signed an agreement when they commenced employment. The agreement said employer/employees will arbitrate their disputes "in lieu of any and all lawsuits or other civil legal proceedings.” In other words, no lawsuits, just arbitration, without a jury or the procedures normally available in lawsuits. The agreement also said the parties would arbitrate any claims that, "in the absence of this Agreement, would have been available to the parties by law.” The arbitration agreement does not expressly address class actions. So what happens if the employees want to band together for a class action against Lamps Plus?

The case is Lamps Plus v. Varela, issued by the Supreme Court on April 24. The short answer is the employees cannot bring a class action under this agreement, only individual arbitration claims. So the employees cannot even bring a class arbitration. The Court's 5-4 ruling divides along the usual partisan lines, with the conservative justices siding with management and the liberal justices siding with the employees.

It all started when a hacker accessed the employer's computer and disclosed the tax information of 1,300 employees. Then a fake income tax return was filed in Frank Varela's name. Varela was a Lamps Plus employee. He filed suit in federal court, seeking a class action. Management moved to compel arbitration on an individual and not classwide basis and to dismiss the lawsuit. The Supreme Court finds that, although the arbitration agreement says nothing about agreeing to forego class actions or even class arbitrations, that ambiguity is held against the employee. The Court reaches this conclusion for the following reasons:

First, the Federal Arbitration Act requires the courts to enforce arbitration agreements. Employment lawyers and class action attorneys already know this. Over the last decade or so, the Supreme Court has upheld a multitude of arbitration agreements in cases involving employment discrimination and consumer protection. Corporate America will have employees and customers agree to arbitrate their disputes even when the latter do not read the fine print or even realize (or fully comprehend) the consequences of that agreement. If they do know the consequences, the employees and customers may not care, as they are not contemplating bringing a lawsuit anyway. And, I doubt employees and consumers will refuse to sign or "consent" to any arbitration agreement, as that means they cannot work there or avail themselves of some consumer product they need. So we sign away our rights. If you sign the agreement, you consented to it.

Second, the Court has already held that arbitration is a favored method of resolving disputes, since they proceed faster and are supposed to be less expensive than full-blown litigation. You may not get to fully litigate the dispute under arbitration, but that downside is outweighed by the "speed and simplicity and inexpensiveness" of arbitration. Under Supreme Court precedent (and most of these cases are decided by the 5-4 conservative majority), almost anything can be arbitrated and taken away from the courts. Plaintiffs' lawyers will tell anyone who will listen that court is better than arbitration, in part because there are no juries in arbitration.

Third, the Court has held there is "reason to doubt the parties' mutual consent to resolve disputes through classwide arbitration" and that "courts may not infer consent to participate in class arbitration absent an affirmative 'contractual basis for concluding that the parties agreed to do so.'" So even an ambiguous arbitration agreement on the subject of classwide arbitrations does not mean the employer must submit to a classwide arbitration. While the employee in this case came up with a great argument, that ambiguous contracts are usually interpreted against the party drafting it, that does not apply in federal arbitration cases. At least not anymore, it doesn't, the Court says in this case, even if that principle typically applies in most contract cases.

We don't quite know the downside of not allowing the employee in this case to bring a class arbitration. My best guess is the damages in this case are not high enough to justify individual arbitrations, and the best way to seek justice is through a class proceeding, particularly if more than 1,000 employees have the same grievance. The Court majority does not address any such downside, even if this ruling puts the kabosh on a single-employee arbitration.

As always, the dissenting justices attack the majority ruling as unrealistic. Justice Ginsburg write to "emphasize once again how treacherous the Court has strayed from the principle that 'arbitration is a matter of consent, not coercion." And Justice Kagan wonders why the normal rules governing the interpretation of ambiguous contracts do not apply here.