Third Circuit: Availability of Classwide Arbitration is an Issue for the Courts – Not Arbitrators – Unless the Parties Agreed Otherwise

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Wednesday, the Third Circuit held that the determination of whether an agreement allows classwide arbitration is a question of arbitrability for the courts “unless the parties unmistakably provide otherwise.” Opalinski v. Robert Half International Inc., Case No. 12-4444 (3d Cir. July 30, 2014).

In Opalinski, former Robert Half International, Inc. (RHI) employees filed a putative collective action under the Fair Labor Standards Act (FLSA) in which they alleged that they were misclassified as exempt employees. Prior to doing so, both plaintiffs had signed employment agreements with arbitration provisions – but the agreements did not mention whether classwide arbitration was allowed. Though the district court granted RHI’s motion to compel arbitration, the district court held that the availability of classwide arbitration was a question for the arbitrator.

Following the referral to arbitration, the arbitrator issued a partial final award and held that classwide arbitration was permitted, a holding the district court refused to vacate. Accordingly, RHI appealed the denial of the motion to vacate the arbitration award in which it posited the question: should the availability of classwide arbitration have been decided by the arbitrator or by the district court?

The Third Circuit reversed the district court’s initial ruling that the determination of whether an arbitration agreement allows classwide arbitration is a question for the arbitrator, and reversed the district court’s later ruling denying RHI’s motion to vacate the arbitrator’s award allowing classwide arbitration. In so doing, the Third Circuit explained that “it is presumed that courts must decide questions of arbitrability unless the parties clearly and unmistakably provide otherwise.” The court determined that the availability of classwide arbitration is a question of arbitrability because it implicates whose claims the arbitrator must resolve. The court explained that “the Supreme Court has long recognized that a district court must determine whose claims an arbitrator is authorized to decide.” Citing John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964). The court concluded that “[t]he determination whether RHI must include absent individuals in its arbitrations with [plaintiffs] affects whose claims may be arbitrated and is thus a question of arbitrability to be decided by the court.” Additionally, the court found that availability of classwide arbitration is a question of arbitrability because it implicates the type of controversy submitted to arbitration. The court found that “individual arbitration and class arbitration are so distinct that a choice between the two goes… to the very type of controversy to be resolved.” Specifically, quoting Stolt-Nielsen, the court cited significant distinctions between individual and classwide arbitrations: “(1) an arbitrator... no longer resolves a single dispute between the parties to a single agreement, but instead resolves many disputes between hundreds or perhaps even thousands of parties... ; (2) the presumption of privacy and confidentiality that applies in many bilateral arbitrations [does] not apply in class arbitrations[,] thus potentially frustrating the parties’ assumptions when they agreed to arbitrate; (3) the arbitrator’s award no longer purports to bind just the parties to a single arbitration agreement, but adjudicates the rights of absent parties as well; and (4) the commercial stakes of class-action arbitration are comparable to those of class-action litigation, even though the scope of judicial review is much more limited.” Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662, 686-87 (2010). The court further noted that the Supreme Court has “changes brought about by the shift from bilateral arbitration to class-action arbitration are fundamental” and that classwide arbitration “is not arbitration as envisioned by the FAA.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1750, 1751-53 (2011).

Accordingly, the Third Circuit remanded the case to the district court with instructions to determine “whether the [plaintiffs’] employment agreements call for classwide arbitration.”

The Third Circuit’s holding is consistent with that of the Sixth Circuit in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013), which we previously discussed on this blog.

Irrespective of (and perhaps as a corollary to) these decisions, the best practice for employers is to divest the arbitrator of the authority to decide any claims on a class, collective, aggregate, or representative basis. Similarly, employers should include a waiver of the right to pursue the arbitration on a class, collective, aggregate, or representative basis.

The bottom line: While it is increasingly likely to be presumed that the availability of classwide arbitration is a question of arbitrability for the courts in the absence of the parties’ agreement otherwise, employers should affirmatively state their intentions if they wish to avoid classwide arbitration.

Topics:  Arbitration, Class Action, Class Action Arbitration Waivers, Contract Drafting, Exempt-Employees, FLSA, Misclassification, Robert Half

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Labor & Employment Updates

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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