Supreme Court reaffirms its ruling on arbitration agreements as bars to class actions, begins chipping away at state laws to the contrary

The Supreme Court reaffirmed its recent ruling in Epic Resources that arbitration agreements, even mandatory pre-dispute arbitration agreements, bar class actions, even when silent on the subject. In doing so, the Supreme Court declined to adopt a standard that would have required such agreements to “clearly and unmistakably” permit class actions, ensuring the issue of just how much an arbitration agreement can and cannot say on the issue of class actions will continue to be litigated. For now, its decision, combined with Epic, mean, at least, that silence is itself a bar to class actions in arbitration.

In this decision the Supreme Court extended its Epic ruling even over what the lower courts had held was contrary California law. The lower courts had held that California law would permit arbitration of class action claims if the arbitration agreement was, although not silent, at least ambiguous on the issue. The lower courts had held that such amibiguity should be interpreted against the company, as the drafter of the agreement. The Supreme Court held here, no, federal public policy under the Federal Arbitration Agreement called for any ambiguity to be interpreted in favor of arbitration, without class actions.

The decision was a tough 5-4 split for the justices, with J. Kagan authoring a vigorous dissent.

The majority’s reasoning suggests other state laws that attempt to chip away at mandatory pre-dispute arbitration agreements are likely to fall if challenged. However, employers should remember that, at least as written, this decision does not expressly mandate the reversal of state laws like California’s notorious fairness factors (Armendariz).

Employers wishing to adopt language that expressly blocks class actions in arbitration, or even, for example, to delete their current opt-out (or opt-in) provisions, may wish to consider the effects first. As other employers have begun to see, blocking class action claims in arbitration can guaranty the filing of mass individual demands for arbitration, which may prove much more costly and time-consuming than the class action.

Source: Lamps Plus v. Varela, — S.Ct. —, case no. 17-988 (4/24/19).