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What Lies Ahead When Employment Arbitration Agreements Are Silent Regarding Class Arbitration

By Amy M. Palesch

Your company has been served with a putative employment discrimination class action. You know the named plaintiff signed an arbitration agreement, but it is silent as to whether class arbitration is permitted or prohibited. Does this mean that your company is still faced with the risks and higher costs inherent in class arbitration?

Some initial good news – silence on the issue of whether class arbitration is permitted or prohibited does not automatically result in class arbitration. The Supreme Court held in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), that class arbitration is not proper unless there is a “contractual basis” in the relevant agreement showing that the parties agreed to class arbitration.

However, the Supreme Court did not explain what it meant by “contractual basis.” In other words, the Supreme Court unfortunately did not hold in Stolt-Nielsen that class arbitration is permitted only where there is an express provision for such a procedure in the arbitration agreement. This ambiguity has resulted in a case-by-case review by courts and arbitrators to decide whether class arbitration is permitted, with unpredictable results. Indeed, in 2013 the Supreme Court upheld an arbitrator’s decision to allow class arbitration despite the subject arbitration agreement’s silence on the issue. Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013). The Court seemed skeptical of the merits of the arbitrator’s decision, but because of the incredibly narrow standard of judicial review of arbitrators’ decisions, class arbitration was upheld in that case.

Does the Court or the arbitrator decide whether your silent arbitration agreement allows class arbitration?  Thetwo circuit Courts of Appeal to address the issue both have held that the availability of class arbitration is a question for a court to decide, unless the parties have clearly agreed to submit the question to the arbitrator. Opalinski v. Robert Half Int’l Inc., 761 F.3d 326 (3d Cir. 2014); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594 (6th Cir. 2013). Also, though unpublished and devoid of in-depth analysis, the Ninth Circuit likewise upheld a district court’s decision to prohibit class claims from being arbitrated. Eshagh v. Terminix Int’l, Co., 588 F. App’x 703 (9th Cir. 2014). Nevertheless, the remaining Circuits have not addressed the issue, so in those Circuits, concern remains regarding not only whether class arbitration will be permitted, but also who makes that decision for you.

Generally, an arbitration agreement should not empower the arbitrator to decide whether class arbitration is permissible.  This is not to denigrate arbitrators, or suggest that arbitrators always allow class arbitration. Rather, if an arbitrator is empowered to make this crucial decision, there is no real option for appealing a decision permitting class arbitration. Note that if your arbitration agreement states that the parties agree that any arbitration will be conducted pursuant AAA’s Commercial Rules, your company has agreed to submit the availability of class arbitration to the arbitrator, per Rule 3 of the AAA’s Supplementary Rules for Class Arbitration. Reed v. Florida Metro. Univ., Inc., 681 F.3d 630 (5th Cir. 2012).

Of course, the uncertainty of class arbitration in the face of a silent arbitration agreement can be avoided by including an express class arbitration waiver in the Agreement. This decision involves a host of considerations. Stay tuned!