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Lights Out on Class Action Arbitration: What Employers Now Need to Consider

Labor & Employment Alert Christopher Nickels and Steven Kruzel

In a favorable decision for employers, the United States Supreme Court recently held that employees seeking to resolve disputes that are subject to arbitration may only pursue such disputes on a class-wide basis if the arbitration agreement expressly allows for class-wide treatment. If an arbitration agreement is silent, vague or ambiguous as to class treatment, it will not provide a basis for class-wide arbitration.

The decision, Lamps Plus, Inc. v. Varela, marks the Supreme Court's second decision in less than a year limiting employees' abilities to pursue class actions against their employers through the use of effectively drafted arbitration agreements. As we previously reported in May of 2018, the Supreme Court in Epic Systems Corp. v. Lewis held that employers may require employees to participate in individual arbitration proceedings when resolving employment disputes and may disallow employees from pursuing such claims on a class basis in a judicial proceeding. In Lamps Plus, the Supreme Court noted that class-wide arbitration was "markedly different" from individualized arbitration, and that class proceedings generally do not lend themselves to the benefits associated with individualized arbitration (i.e., efficiency, cost-savings, and certainty of outcome (among others)).

Less than a week after the Lamps Plus decision was issued, it already made its mark at the district court level. In Herrington v. Waterstone, Judge Barbara Crabb of the Western District of Wisconsin overturned a $10 million dollar class action arbitration win, holding that the employee's arbitration agreement with her company "unambiguously bar[red] class arbitration, " and that even if it had not, the court could not, based on the Supreme Court's holding in Lamps Plus, infer from an ambiguous agreement that the parties had consented to class-wide arbitration.

Taken together, Epic and Lamps Plus provide employers effective options to limit the potential of employee class actions -- by requiring employees to arbitrate any employment-related claims (Epic), and by eliminating uncertainty regarding the availability of class-wide arbitration (Lamps Plus) -- through well-drafted employment arbitration agreements. Employers seeking to implement arbitration agreements should consider their benefits and potential drawbacks, as noted here. Employers looking to limit class-wide exposure by employees should give considerable thought to whether such agreements are appropriate for their business.

For more information or assistance with arbitration agreements, please contact your Quarles & Brady attorney or: