Whatever the Court Decides It Won’t End the Debate Over Class Action vs. Individual Arbit…

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Nov 21, 2018

The interplay between arbitration agreements and employment-based class actions has been the subject of extensive and often conflicting legal opinions for the last half-decade. While many hoped the issue would gain clarity and stability following last June’s Supreme Court ruling in Epic Systems v. Lewis (where the Court said class actions waivers in arbitration agreements are enforceable), cases pitting employment class claims against arbitration agreements limiting them continue posing new questions.

Late last month the Supreme Court heard oral arguments on the latest such case, Lamps Plus v. Varela, which should resolve whether an arbitration agreement that neither explicitly permits nor explicitly precludes a class action can be interpreted to allow it.

It is fair to wonder why we are writing about “the latest such case,” particularly when the Supreme Court normally does not take up thematically-similar cases in bunches. However, the “employment-class-action-versus-individual-arbitration” debate presents great social, economic and political divides, far beyond the specific legal issue addressed in a given case. And when legal matters challenge such divides, Supreme Court decisions more often write chapters of the story than the conclusions and epilogues.

Employers would be wise to view whatever results from Lamps Plus as a development, not a conclusion, because the employment class action versus individual arbitration story will likely continue evolving.

Class action waivers upheld

Before we reflect further on Lamps Plus however, indulge us for a paragraph as we take you back to 2011. In April of that year, the Supreme Court ruled in its AT&T Mobility LLC v. Concepcion decision (a non-employment, commercial contract case) that companies could both require that individuals bring legal claims through arbitration and preclude those same individuals from bringing claims on a class basis by including a class action waiver in the arbitration agreement. In the wake of Concepcion, many employers adopted arbitration agreements with explicit class action waivers. This led to new legal challenges claiming such waivers violated the National Labor Relations Act’s protections against employee concerted activity. Ultimately, Epic Systems, decided 5-4 on what most would consider ideological lines, upheld the enforceability of such agreements.

Lower court upholds class arbitration

In 2016, retailer Lamps Plus suffered a data breach from a phishing scam, which compromised confidential employee tax information. One such employee – Frank Varela – filed a class action in response. Lamps Plus moved to compel arbitration of the case. Importantly, the employee’s arbitration agreement neither authorized nor prohibited class arbitration. It did, however, state that “all disputes” arising out of the individual’s employment were subject to mandatory arbitration.

A federal court in California granted Lamp Plus’s motion to compel arbitration, but with an unexpected and unwanted condition – it ordered the arbitration to proceed on a class basis because the employee’s agreement covered “all disputes” arising out of his employment, and did not limit itself to the employee’s individual claims. A majority of a three-judge panel of the United States Court of Appeals for the Ninth Circuit agreed such language indicated mutual intent to authorize class arbitration. And once more the Supreme Court entered into the arbitration/class proceedings morass.

Supremes hint toward individual claims

On one (and perhaps more superficial) level, Lamps Plus, once resolved, should provide employers guidance on exactly what language an arbitration agreement requires to limit proceedings to individual claims. If the questioning during oral arguments last month offered any hints of the outcome, it suggested the appearance of a majority (and perhaps one in which as many as seven justices could join) inclined to rule that unless an arbitration agreement explicitly authorizes class claims, the Federal Arbitration Act’s preemptive preference for arbitration only means these agreements are presumptively individual-claim agreements.

Assuming this outcome in fact plays out, it will provide one more favorable ruling for employers in this sphere. That said, our advice will likely still remain that employers seeking to use arbitration agreements as a firewall against class action arbitration should have their agreements say so explicitly, particularly in light of the widespread hostility towards the use of arbitration to preempt class action litigation.

Employers currently using arbitration agreements that do not spell out preclusions against class claims might want to think about the pros and cons of amending the language of that agreement now versus waiting to see how the Supreme Court ultimately decides the issue and what guidance it provides in the process.

Class action as a social and political issue

But from a broader and perhaps more forward-looking perspective, the importance of Lamps Plus comes not so much from the micro-level issues it addresses, but from the fact that it continues to direct national attention to employment-related class action litigation, employer efforts to insulate against such expense and risk, and interest group hostility toward such insulation efforts.

In other words, employers would be wise to view class action versus arbitration as a divisive social and political issue that is not as much about a relatively narrow legal question as it is about either (depending on your point of view) a need for protection against abusive litigation or a perceived imbalance of power held by employers and the tools made available to suppress employee rights and exploit workers, especially low-income wage earners.

Congressional action to outlaw waivers

One need only look at the relatively immediate legislative response to Epic Systems to see this context for what it is. The day after oral argument on Lamps Plus, several Congressional Democrats introduced bills in the Senate and House of Representatives that would effectively overturn Epic Systems by outlawing the use of class action waiver provisions in employment contracts and bar mandatory arbitration of employment disputes.

Realistically, these bills have almost no prospect of becoming law during a Trump Administration, but they signal a potential national policy focus on shifting the perceived imbalance of power between employers and employees if a continued “blue wave” changes the makeup of Congress and the White House in 2020. And while we certainly understand the “Can we please not talk about elections after we just finished the 2018 midterms??” sentiment that many feel right now, 2020 is not that far away, and wise employers should have at least one eye on preparations for an uncertain political future.

Look also west to California, where in August of this year, the Legislature sent AB 3080, which would have prohibited employers from forcing employees to sign arbitration or nondisclosure agreements as a condition of employment, to Governor Jerry Brown’s desk for signature. Perhaps surprisingly to some, Governor Brown vetoed the legislation on the basis that it would violate, and therefore be preempted by, the Federal Arbitration Act. It seems hard to imagine that Governor Brown’s veto will put an end to efforts in California to overturn, or at least mitigate, the impact of the Epic Systems decision, particularly with Governor Brown’s term as governor about to conclude.

Implications for employers

Lamps Plus certainly has significant implications for what will happen to potential class claims where an arbitration agreement neither specifically authorizes nor precludes a class proceeding. But perhaps it’s more important value for human resources professionals is the emphasis it maintains on class actions versus arbitration as a critical battleground for how the law should seek to strike balance between protecting workers against abuse by economically advantaged employers and use of the courts and the tremendous expense of litigation for equally exploitative purposes.

Employers should understand that, like it or not and regardless of any political leanings, they occupy a space somewhere between these two political poles and would therefore be wise to invest, on an ongoing basis, thought and resources both into protecting against class action litigation considerations and “doing-the-right-thing” cultural and compliance efforts.

While we cannot necessarily predict how political winds will drive legal outcomes, combining a risk mitigation thought process with a focus on social responsibility is always a good strategy in our humble opinion.

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