Lamps Plus Dims the Future of Class Arbitration.

The Supreme Court dealt another blow to employees seeking to assert their workplace rights with its decision in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), all but killing the possibility of concerted arbitration in most cases. Lamps Plus is centered around mandatory, pre-dispute arbitration agreements. Employees often sign mandatory arbitration agreements as a condition of their employment. When faced with unlawful conduct in the workplace, these agreements prevent employees from suing their employers in court. Instead, employees must adjudicate disputes in arbitration, which is often a process skewed toward employers. Bryan Schwartz Law has blogged about problems with arbitration several times, including here, here and here. Though the Supreme Court pretends that arbitration is a more efficient and cost-effective means of resolving a conflict, arbitration is really only more efficient and cost-effective to the extent that it kills statutorily-protected claims all together – nothing more than a windfall for law-breakers, harming workers and consumers and preventing law-abiding businesses from competing on a level playing field.

In Lamps Plus, the Court examined when arbitration claims could be brought on behalf of multiple employees in a single action. Often, employees with valid grievances cannot and would not sue their employers individually because the cost of hiring an attorney outweighs the value of their claims and litigation and arbitration are time-consuming, draining, and always raise fears of retaliation. Fortunately, employees can band together against an employer as a class or collective, allowing them to bring claims together that would be too costly and difficult to pursue as individuals.

Over the past decade, the Supreme Court has chipped away at the availability of both class actions in court and class arbitration through its interpretation of the Federal Arbitration Act (“FAA”). In 2010, the Court held that individuals cannot pursue class arbitration if it is not permitted by their arbitration agreement. Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010). In April of this year, the Supreme Court extended Stolt-Nielsen’s holding to include contracts that are ambiguous on the issue of class arbitration in its Lamps Plus decision. Like silent arbitration agreements, the Court held, ambiguous arbitration agreements do not provide employees the option of pursuing class arbitration.

In Lamps Plus, the company was alleged to have disclosed sensitive personal information belonging to 1,300 employees, including that of the plaintiff, Frank Varela.  As a result, Mr. Varela was the victim of identity theft. Mr. Varela sued Lamps Plus on behalf of himself and the other employees affected by the security breach.

Lamps Plus moved to kick the case out of court and into arbitration based on Mr. Varela’s arbitration agreement. The District Court granted Lamps Plus’s motion. However, it rejected Lamp Plus’s request for individual arbitration and instead authorized Mr. Varela to proceed with class arbitration.

The Ninth Circuit affirmed. The court determined that the language in Mr. Varela’s arbitration agreement was ambiguous on the issue of class arbitration. In resolving the ambiguity, the court applied the California legal principle requiring ambiguous contract terms be construed against the drafter, a doctrine known as contra proferentem. All fifty states apply contra proferentem because it encourages clear contract drafting. Lamps Plus 139 S. Ct. 1407 (Kagan, J., dissenting). Here, Lamps Plus submitted that the contract only conveyed consent to individual arbitration, while Mr. Varela argued that the contract implied consent to class arbitration. The court construed the meaning of the contract against the drafter, Lamps Plus. Thus, the court disagreed with Lamps Plus’s interpretation and ruled Mr. Varela could bring a class arbitration claim.

The Supreme Court rejected the Ninth Circuit’s application of contra proferentem and held that contracts ambiguous on the issue of class arbitration do not authorize class arbitration. In its reasoning, the Court relied heavily on a false distinction between individual and class arbitration. The majority opined that class arbitration does not achieve the FAA’s goals of making litigation faster, simpler and less expensive. Lamps Plus, 139 S. Ct. at 1416. According to the current Supreme Court majority, class arbitration “makes the process slower, more costly, and more likely to generate procedural morass than final judgement.” Id. (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 348 (2011)).  Therefore, the Court concluded that the term “arbitration” does not intrinsically include class arbitration. The Court’s reasoning is based on the mistaken belief that individual arbitrations are indeed faster, simpler, and less expensive. Id. This leap of reasoning is unsupported, in fact, and contrary to the experience of this firm. Hundreds of individual arbitrations are not actually faster, simpler, or less expensive than a single class case.

The Court then decided how to interpret the ambiguity in Mr. Varela’s contract. The Court conceded that, normally, courts apply state law when interpreting contracts. Id. at 1415. Here, however, the Court held that the federal FAA conflicts with the state doctrine of contra proferentem, thereby displacing it. Id. at 1417-18.

According to the Court, the two laws conflict because, under the FAA, “[a]rbitration is strictly a matter of consent.” Id. at 1415 (quoting Granite Rock Co. v. Teamsters, 561 U.S. 287, 299 (2010)).  Contra proferentem, on the other hand, provides a method of contract interpretation that disregards consent between the parties in favor of a practical solution. Id. at 1418. Considering this manufactured conflict between supposed “consent” between parties under the FAA (which, as Justice Ginsburg explained in her dissent, is a fallacy) and standard principles of contract law, the Court decided that the FAA applies instead of contra proferentem. Id. Thus, the Court held employees cannot pursue class arbitration if their contracts are ambiguous on the issue. Id. Rather, arbitration agreements only authorize class arbitration when there is clear language that shows both parties intended to provide for class arbitration. Id.

This opinion inspired a flurry of dissents. In the main dissent, Justice Kagan argued that Mr. Varela’s contract was not ambiguous in the first place – it clearly allowed for class arbitration. Id. at 1428-29. Even if the contract were ambiguous, she argued, contra proferentem should apply because it does not conflict with the FAA. Id. at 1430-35. Justice Sotomayor’s dissent rejected the notion that class arbitration is fundamentally different from individual arbitration. Id. at 1427. She argued that consent to arbitration necessarily includes the ability for complainants to proceed as a class. Id. Justice Breyer argued that the Court of Appeals lacked jurisdiction altogether. Id. at 1422-23.

Justice Ginsberg crafted the most scathing dissent. She called out the disingenuity of the majority’s central premise that arbitration “is strictly a matter of consent.” Id. at 1421. In reality, people rarely have genuine choice when signing arbitration agreements. Rather, they are often a condition of employment. Id. When Congress passed the FAA in 1925, Ginsberg noted, Congress intended arbitration to simplify dispute resolution between businesses with equal bargaining power. Id. at 1420. This is a far cry from the role of arbitration today. Now, employers can force arbitration agreements on employees to insulate themselves from the consequences of unlawful employment practices. As Ginsberg argued in her dissent, mandatory individual arbitration thwarts “effective access to justice.” Id. at 1422.  

It is the unfortunate reality that a growing number of employees must agree to mandatory, pre-dispute, individual arbitration as a condition of employment. Nevertheless, employees may overcome arbitration agreements, or make employer’s pay in arbitration – employers sometimes fail to obtain arbitration consent from all employees, or waive a right to compel arbitration by proceeding in court extensively before moving to compel arbitration. Employers do not expect massive numbers of employees to file in arbitration – they hope employees will simply abandon their claims. However, mass filing of arbitrations by aggrieved employees sends a strong message: arbitration is not meant to be a get-out-of-jail free card. In California, employees have the option of bringing a representative action under the Private Attorneys General Act of 2004 (“PAGA”), standing in the shoes of the state, which cannot be compelled involuntarily to arbitration. With our vigilance, and notwithstanding the best efforts of the present U.S. Supreme Court to abandon workers’ rights to the whims of big business, workers’ claims may yet be vindicated. If you are an employee and have questions about a supposed arbitration agreement between you and your employer, contact Bryan Schwartz Law