U.S. Supreme Court to Decide Another Major Class/Collective Action Arbitration Case

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On December 7, 2012, the U.S. Supreme Court granted certification in Oxford Health Plans LLC v. Sutter, No. 12-135, 675 F.3d 215 (3rd Cir. 2012). In Oxford, the Third Circuit affirmed a decision that an arbitrator did not exceed his authority in holding that an arbitration agreement which is silent as to class actions still permits class arbitrations. The Oxford decision, as well as the Second Circuit's decision in Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011), are at odds with the Fifth Circuit's decision in Reed v. Florida Metropolitan Univ., 681 F.3d 630 (5th Cir., 2012), which openly disagreed with the Second Circuit over the interpretation of the U.S. Supreme Court's holding in Stolt-Nielsen v. AnimalFeeds International Corp., 130 S. Ct. 1758, 1776 (2010). The question presented as described by the Supreme Court is as follows:

In Stolt-Nielsen v. AnimalFeeds International Corp., 130 S. Ct. 1758, 1776 (2010), this Court made clear that "class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to arbitration." In this case, an arbitrator concluded that the parties affirmatively consented to class arbitration on the basis of a contract provision stating: "No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration." The question presented is:

Whether an arbitrator acts within his powers under the Federal Arbitration Act (as the Second and Third Circuits have held) or exceeds those powers (as the Fifth Circuit has held) by determining that parties affirmatively "agreed to authorize class arbitration," Stolt-Nielsen, 130 S. Ct. at 1776, based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.

After Stolt-Nielsen, some courts and arbitrators have held that when an arbitration agreement is silent as to class/collective action waiver, the parties impliedly agree to class/collective treatment of claims in arbitration. These courts and arbitrators hold such an intention may be inferred and need not be explicitly stated. As one court stated: "Stolt-Nielsen did not insist on express consent to class arbitration."

With respect to wage claims, what occasionally happens in an arbitration clause construction hearing is that a company argues a purported class action plaintiff who signed an arbitration agreement without an express class/collective action waiver must arbitrate her claim individually and not as a class/collective action. The arbitrator then determines whether the arbitration agreement "evinces sufficient indicia of agreement between the parties that a claim within its scope may proceed on a collective basis." If the arbitration agreement applies to all employment-related disputes that may arise between the company and its employees, including all federal statutory claims (like nearly all arbitration agreements), an arbitrator sometimes holds that because the plaintiff has a statutory right to bring a Fair Labor Standards Act claim on behalf of herself and similarly situated employees, and such a claim arises out of her employment relationship, she can arbitrate her claim collectively or as a class. Another strike is when the arbitration agreement explicitly excludes certain claims (e.g., National Labor Relations Act claims) but the exclusions do not include collective or class claims. The final strike is when the arbitration agreement incorporates the American Arbitration Association (AAA) rules (like most do). The AAA's "Policy on Class Arbitrations" states that the AAA will "administer demands for class arbitration . . . if (1) the underlying agreement specifies that disputes arising out of the parties' agreement shall be resolved by arbitration in accordance with any of the Association's rules, and (2) the agreement is silent with respect to class claims, consolidation or joinder of claims."

It is hoped that the Supreme Court will add more teeth to its Stolt-Nielsen holding and clarify that an intention to authorize class or collective arbitration has to be explicit and cannot be inferred from an arbitration agreement. In the meantime, it would be worthwhile to review any existing arbitration agreements with legal counsel to provide the maximum benefits to the organization.

For Further Information

If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.