Class Action Arbitration Cannot Be Compelled Without an Express Agreement

In Lamps Plus, Inc. v. Varela, the U.S. Supreme Court recently stated that arbitration agreements must state an express agreement to arbitrate class claims between the parties; otherwise, claims brought on a class basis can be compelled to individual arbitration. There, an employee sued Lamps Plus for leaking private tax information that led to someone filing a fraudulent tax return under the name of the employee. Lamps Plus sought to compel arbitration of the employee’s claims; however, because the arbitration agreement was ambiguous about class claims, the lower courts allowed the employee’s class claims to proceed in arbitration.

The Supreme Court stated that class action arbitration cannot be compelled unless there is an “affirmative contractual basis for concluding that the party agreed to do so.” Ambiguity in the arbitration agreement is not sufficient to enforce class arbitration. Thus, the employer succeeded in turning a class action claim into individual arbitration, without a class action waiver in the arbitration agreement.

Arbitration agreements with class action waivers are the most clear method to require employees to bring claims individually. Lamps Plus has allowed another path to forcing individual claims without having a class action waiver. However, employers may want to use class action waivers in arbitration agreements to avoid risking alternate interpretations where an agreement may be ambiguous. Employers should have arbitration agreements reviewed by legal counsel to ensure use of clear language.