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After many years of litigation, employer Lamps Plus successfully defended its arbitration agreement all the way to the U.S. Supreme Court (“SCOTUS”), when the Court’s conservative majority ruled that a court may not compel class-arbitration unless the parties’ arbitration agreement shows that the parties agreed to that process.

In the case at issue, Varela v. Lamps Plus an employee sued its employer, Lamps Plus, over a data breach issue where 1,300 employees’ tax information was released by a hacker. The employee sued on behalf of himself and other employees whose information was released. The employer sought to enforce its arbitration agreement with employee, arguing that the case should be compelled to individual arbitration—meaning that the employee could arbitrate his claim only. The District Court compelled the claim to arbitration, but authorized the employee to pursue the claims as a class representative—meaning that the case would proceed as a class-action in arbitration. The employer appealed, saying that the employee could not pursue a class claim in arbitration, and that only the employee’s individual claim should be pursued. The issue was heard by the Ninth Circuit, who agreed again with the employee that class treatment in arbitration was appropriate because the arbitration agreement was ambiguous on the issue of class arbitration.

The SCOTUS, in a 5-4 decision, reversed the Ninth Circuit, agreeing instead with the employer. The SCOTUS held that arbitration is a matter of consent, and that proceeding with class-arbitration sacrificed the principal advantage of arbitration (informality, decreased cost, speed) and greatly increased risks to defendants. The Court held that without a contractual basis for concluding that the party agreed to class arbitration, there was no basis to allow class arbitration to continue, and the case should have been compelled to individual arbitration. This means that the Court did not allow the employee to represent his other “similarly situated” employees, but instead could only sue on behalf of himself.

COUNSEL TO MANAGEMENT:

Arbitration agreements are tricky, and enforcement of an agreement alone can take years of legal maneuvering, as demonstrated in this case. HOWEVER, in the end, this case demonstrates that an arbitration agreement can be an effective tool for employers to limit class-type claims, consistent with this decision. If you have questions about arbitration agreements or are interested in updating or rolling out a new arbitration agreement with the start of the season, contact The Saqui Law Group, a Division of Dowling Aaron.

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