This past spring 2019, the Supreme Court brought a new interpretation to the field of U.S. arbitration. A challenge for workers but a gift for employers, Lamps Plus v. Varela has more loosely applied the waiver of class action arbitration in the Federal Arbitration Act.
The FAA was enacted in 1925 to relieve pressure on commercial disputes and provide equal bargaining power through arbitration. The act was later applied to employment disputes and now relieves the financial and time-consuming burden of employee lawsuits from the employers. If commercial entities or employers and employees agree to waive arbitration rights, then under the FAA, the courts must uphold their agreements.
The most commonly referenced section of the FAA, and the section under review of Lamps Plus, reads:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.9 U.S.C.A. § 2 (1947)
Before the decision in Lamps Plus, the Supreme Court referenced consent and the enforceability of waivers under the FAA in AT&T Mobility LLC v. Concepcion. California state law in AT&T held that waiving class arbitrations was unconscionable, despite the FAA. The court ruled that state law could never prompt class arbitration if the arbitration agreement prevented it. The recent decision also holds that the Act, as federal law, supersedes state law, although the language of a contract no longer needs to include reference to class arbitration. Lamps Plus ultimately decided that if there is consent between both parties, then the waiver is valid and must be upheld.
Lamps Plus began as a class action lawsuit for employees’ whose data had fallen victim to a phishing attack in 2016. The employer moved to compel arbitration, which the district court granted but allowed Varela and the other employees to proceed with class claims. The court’s decision was affirmed upon appeal, with reasoning that the arbitration agreement was too ambiguous to imply class action arbitration in its waiver. The Supreme Court, however, found that ambiguity in this circumstance no longer matters.
When agreements compel individual arbitration, even when class actions are not mentioned, Lamps Plus holds that it may be inferred that the right to class action arbitration has been waived. Employers must now consent to the possibility of class action arbitration causes against them, and the lack of consent can be inferred in an ambiguous arbitration clause.
Class arbitration waivers have now been made nearly obsolete by the Court. Their existence at all is under moral debate. Employers are the ones who enforce these agreements. The chosen arbitrators may be inherently biased by the businesses, when the businesses are their primary ‘clients’ and source of income. This undermines one of the key purposes of arbitration agreements, which is the maintenance of equal bargaining power. It has become increasingly difficult for the working class to fight their way out of forced arbitration. Now, Lamps Plus has taken away most employees’ power against waiving class action arbitration. Prior to this decision, companies have been wary to include class actions in their waiver agreements due to public policy and fear that agreements would be stricken by a court. Now, businesses may be safe to include class actions. Even if they do not, inclusion can easily be implied because they did not consent to their employees filing in class actions against them.
This expansion of the power of employment arbitration agreements may help businesses grow uninhibited by lawsuits. However, there is growing concern that these agreements have become too powerful and are affecting the rights of people across the United States. New legislation, protests, and bans on forced arbitration may now be the only ways supporters of workers’ rights may hope to limit forced arbitration, especially after increasing support from the Supreme Court. The movement against these usually unavoidable agreements has grown stronger even this year, and Congress is currently deciding on the Forced Arbitration Injustice Repeal Act (The FAIR Act). If successful, the Act may repeal most interpretations of the FAA and the fast-progressing field of “forced” employee arbitration. For now, companies are advised to continue to use careful language in the formation of their arbitration agreements and workers are advised to be aware of their rights and those they are giving up.
By Brooke Blaney, Junior Staffer
- Lamps Plus v. Varela, 139 S.Ct. 1407 (2019).
- 9 U.S.C.A. §§ 1-16 (1925).
- Aatif Iqbal, “The Supreme Court Closes Another Door to Class Arbitration,” Pomerantz LLP (Aug. 2019), http://pomerantzlawfirm.com/publications/2019/8/12/the-supreme-court-closes-another-door-to-class-arbitration.
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).
- “Supreme Court Dims The Light On Class Arbitration,” Fisher Phillips (April 24, 2019), https://www.fisherphillips.com/resources-alerts-supreme-court-dims-the-light-on-class.
- “The Forced Arbitration Injustice Repeal Act,” 2019 CONG US S 630 (proposed Feb. 28, 2019).
- 9 U.S.C.A. § 2 (1947).
- “All Alone In Arbitration: At&T Mobility V. Concepcion And The Substantive Impact Of Class Action Waivers,” 160 U. Pa. L. Rev. 541, at 542-561.
- “§ 2:14. Limitations on applicability of class action device—Class certification in arbitration—Enforceability of consumer contract provisions barring class actions,” 1 McLaughlin on Class Actions § 2:14 (16th ed.).