Fool’s Gold: Second Circuit Vacates Order Affirming Arbitrator’s Certification of Class of Jewelry Store Workers Including Absent Class Members

by Orrick - Global Employment Law Group
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On July 24, 2017, the Second Circuit Court of Appeals rejected a federal district court’s approval for a class of roughly 69,000 women claiming that Sterling Jewelers, Inc. (“Sterling”) discriminated against them based on sex. The decision overturned a district court ruling that affirmed an arbitrator’s decision to let the women proceed to trial as a class in an arbitration.

Plaintiffs initially filed a class action lawsuit in March 2008, alleging that Sterling’s practices and policies led to women being deliberately passed over for promotions and paid them less than their male cohorts. The case was sent to arbitration several months later under Sterling’s arbitration clause.

In 2009, an arbitrator ruled that Sterling’s dispute resolution program did not specifically bar class actions and allowed claimants to seek class status. From there, the case took a number of twists and turns, which we reported on more fully at the time here.

In June 2013, the employees moved for class certification. In February 2015, the arbitrator ruled that that the employees could proceed as a class in the arbitration.  In November 2015, the district court affirmed the arbitrator’s decision concluding that the arbitrator did not exceed her authority by certifying a class that included absent class members i.e., employees other than the named plaintiffs and those who have opted into the class.  Sterling appealed.

The Second Circuit vacated the district court’s decision and remanded for further consideration of whether the arbitrator exceeded her authority in certifying a class that contained absent class members who have not opted in. In so holding, the Second Circuit noted that in Jock v. Sterling Jewelers Inc., 646 F.3d 113, 124 (2d Cir. 2011) (“Jock I”), it held that “the issue of whether the agreement permitted class arbitration was squarely presented to the arbitrator.”   However, the court further noted that the decision in Jock I, did not squarely address whether the arbitrator had the power to bind absent class members to class arbitration given that they, unlike the parties here, never consented to the arbitrator determining whether class arbitration was permissible under the agreement in first place.

The court held that the case of Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013), relied on by the district court, did not suggest otherwise. The court ruled that in that case, “the Court wrestled solely with the question of whether an arbitrator to whom the parties had submitted the issue acted within his authority in finding that a contract provided for class arbitration.” That issue, the court noted was analogous to that addressed in Jock I, but, the court held that Oxford Health Plans does not speak to whether an arbitrator in that scenario also has the authority to certify a class containing absent class members.

Although in vacating and remanding the district court’s decision, the Second Circuit did not explicitly hold that an arbitrator was without the authority to certify a class containing absent class members, its opinion suggests that if it were presented with that question it would make such a ruling. For example, the court cited Justice Alito’s concurrence in Oxford Health Plans in which he stated “it is difficult to see how an arbitrator’s decision to conduct class proceedings could bind absent class members who have not authorized the arbitrator to decide on a classwide basis which arbitration procedures are to be used.”

Although the Second Circuit’s ruling was a win for the employer, it does create addition uncertainty regarding class actions and arbitration and suggests that participation in class arbitration may be in the future limited to only named plaintiffs and those employees who opt-in.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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