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Ambiguity Does Not Justify Class Arbitration Rules Supreme Court

Earlier this year, the United States Supreme Court held ambiguous language in an arbitration provision does not entitle an employee to compel class arbitration. 

In Lamps Plus Inc. v. Varela, a hacker tricked a Lamps Plus employee to share tax information for 1,300 employees.  A fraudulent return was then filed on behalf of Frank Varela, a Lamps Plus employee.  Mr. Varela sued filing a putative class action on behalf of employees whose information was compromised.  Lamps Plus moved to compel individual arbitration based on an agreement he signed with the Company. 

The District Court found the agreement was ambiguous and construed it against the drafter – the employer.  Therefore, it authorized a class arbitration.  The Ninth Circuit affirmed, but the Supreme Court reversed and remanded. 

The Supreme Court opined the Federal Arbitration Act (“FAA”) requires consent for arbitration.  It held in an earlier ruling in Stolt-Neilsen silence is not enough to compel class arbitration. In this case, the Court went further and held ambiguity is not enough either.  There must be no doubt it was the parties’ intent to resolve claims through class arbitration. 

This ruling is considered a win for employers because class wide arbitration is risky and expensive.  There is also no judicial review so for an employer this type of case can become a money pit or “bet the company” litigation.  This holding gives employers the power to insist on individual arbitration unless it has expressly authorized class arbitration.  This is a big win!

Brody and Associates regularly advises its clients on matters involving arbitration and other areas of alternative dispute resolution.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.4540560.

Additionally, if this article generated any additional questions for you, please contact us at info@brodyandassociates.com.  We may address your question in a future blog post.