On April 24, 2019, in a 5-4 decision split along ideological lines, the Supreme Court held in
Lamps Plus, Inc. v. Varela that class arbitration is not available where arbitration agreements are unclear about whether the parties agreed to class arbitration.
- Frank Varela, a Lamps Plus employee, filed a putative class action against his employer on behalf of himself and other employees, asserting that Lamps Plus did not adequately protect workers’ personal data. Relying on an arbitration agreement Varela signed when he started his employment, Lamps Plus tried to compel individual arbitration and to dismiss Varela’s claims.
- While the district court dismissed Varela’s claims and compelled arbitration, it permitted Varela’s claims to be arbitrated on a classwide—rather than individual—basis. Lamps Plus appealed, arguing that the district court erred in compelling class arbitration.
- The Ninth Circuit affirmed, applying the contra proferentem doctrine, which requires courts to construe ambiguous contractual language against its drafter (in this case, Lamps Plus).
- The Supreme Court reversed, ruling that it was error to compel class (rather than individual) arbitration. The Court rejected the Ninth Circuit’s application of the contra proferentemdoctrine, reasoning that this kind of state law rule of construction is preempted by the Federal Arbitration Act.
- The Supreme Court reasoned that its decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010)—which barred class arbitration when there is no “contractual basis for concluding” that the parties had agreed to it—extends to cases like this one where the relevant arbitration agreement is vague about class arbitration. The Court’s ruling means that for a court to order classwide arbitration, the agreement at issue must clearly show that the parties agreed to use the process.
- The Lamps Plus decision represents a clear win for businesses, which generally prefer individual arbitration because it is cheaper, quicker, and less procedurally complex than class arbitration. Lamps Plus is the latest in a series of pro-arbitration decisions from the Supreme Court. But while this decision presents a significant barrier to class arbitration, employers should still make the terms of their arbitration agreements as clear as possible to ensure enforceability.
- Read the Supreme Court’s opinion in Lamps Plus here.
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