One year passed since the U. S. Supreme Court ruled in Epic Systems Corp. v. Lewis that arbitration agreements which provide for individualized proceedings are enforceable and do not violate either the Federal Arbitration Act (“FAA”) or the National Labor Relations Act (“NLRA”). Since Epic, the legality of class waivers has still been a hot-button issue with multiple arbitration cases on the Supreme Court’s docket. Recently, in Lamps Plus v. Varela, 587 US ____ (2019), the Supreme Court ruled that arbitration agreements must explicitly contemplate and provide for class arbitration. In a 5-4 opinion, the Court’s majority held that the FAA bars class arbitration if an arbitration agreement is ambiguous about the availability of such arbitration.
The underlying claim in Lamps Plus arose after Lamps Plus disclosed employees’ personal identifying information in response to a phishing scam. Employee Frank Varela filed a class action complaint in federal district court against his employer for negligence, invasion of privacy, and breach of contract, and Lamps Plus moved to compel individual arbitration based on the arbitration agreement that Varela signed as a condition of his employment. The District Court rejected Lamp Plus’ individual arbitration request and authorized class arbitration. Lamps Plus appealed, but the Ninth Circuit affirmed and ruled that class arbitration could move forward. The Court of Appeals applied the common law doctrine of contra proferentem, to construe contract ambiguities against the drafter and interpreted the ambiguous arbitration clause to authorize class arbitration.
On April 24, 2019, the U.S. Supreme Court reversed and held an ambiguous arbitration agreement cannot provide the necessary contractual basis for compelling class arbitration. The Court found that the availability of class arbitration is a matter of consent and parties must agree to arbitrate. Because of the fundamental differences between class arbitration and the individualized form of arbitration envisioned by the FAA, the Court reasoned it must give effect to the intent of the parties. Lastly, the Court rejected the application of common law, finding the FAA preempted the common law.
Following the decision in Lamps Plus, it is clear that courts may not infer the availability of class arbitration in arbitration agreements. Rather, the arbitration agreement must explicitly call for class arbitration for it to be available.