Arbitration clauses meant to prohibit class action arbitrations, whether in employment agreements or other documents, need to be reviewed after a recent Supreme Court decision. In Oxford Health Plans v. Sutter, ___ U.S. ____, No. 12-135 (June 10, 2013), the Court unanimously upheld an arbitrator’s ruling that a pediatrician could proceed with a class action arbitration against Oxford Health Plans under a fee-for-services contract that was silent as to class arbitration. In doing so, the Court clarified its prior holding in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) that an arbitrator only may permit a class arbitration if the contract at issue permits it.
Reconciling the two decisions, the Court asserted that in Stolt-Nielsen the parties stipulated that there was no agreement regarding the appropriateness of class arbitration. In contrast, the arbitrator in Sutter interpreted the arbitration agreement as permitting class arbitrations per the parties agreement that the arbitrator should decide the question of arbitrability.
In sum, Stolt-Nielsen still stands for the proposition that class arbitration only is appropriate where the parties have agreed to permit it. Where, however, an arbitrator interprets an arbitration provision as evidencing an agreement to permit class arbitrations, the Federal Arbitration Act prohibits a court from deciding whether that interpretation is correct – a court is tasked only with determining whether the arbitrator exceeded his powers to interpret the contract.
So how do you ensure that an arbitrator will not interpret an arbitration provision to permit class arbitrations? The easiest way is to be clear in the agreement.
In AT&T v. Concepcion, the Supreme Court held that arbitration provisions expressly proving only for individual, and not class, claims are valid. There is no downside to making it perfectly clear that only individual arbitrations are permitted.
If the parties negotiating an agreement cannot agree as to whether class arbitrations should be permitted, you should memorialize the fact that no agreement has been reached on the subject. Doing so should place the agreement squarely within the scope of Stolt-Nielsen. As the Court stated in Stolt-Nielsen, and quoted in Sutter, “Th[e] stipulation left no room for an inquiry regarding the parties intent.”
If your arbitration provision is not clear, you need to be careful about what issues you agree the arbitrator should hear. As seen in Sutter, agreeing that the arbitrator should decide the question of arbitrability can provide the arbitrator with the ability to interpret an arbitration agreement. Once s/he does so, the Federal Arbitration Act prevents a court from questioning the correctness of the resulting interpretation.
As the Court stated in Sutter, “convincing a court of an arbitrator’s error – even his grave error – is not enough. So long as the arbitrator was “arguably construing” the contract – which this one was – a court may not correct his mistakes…. To avoid being subject to an arbitrator’s interpretation of any potential agreement to engage in class arbitrations, be clear that no such agreement exists. Doing so is the only certain way to ensure that an arbitrator does not erroneously interpret your arbitration agreement.