Class Arbitration–A Gateway Issue for the Court

by Sherman & Howard L.L.C.
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In Opalinski v. Robert Half International, Inc., No. 12-4444 (3d Cir. July 30, 2014), former employees brought claims on behalf of themselves and others against Robert Half International (“RHI”) for unpaid overtime.  The arbitration agreement between the parties provided that “[a]ny dispute . . . arising out of or relating to Employee’s employment” shall be submitted to arbitration.  The agreement was silent as to whether class (as opposed to individual) arbitration was permitted.  The court ordered the claims to arbitration but held that the propriety of an individual versus classwide arbitration was a question for the arbitrator.  After the arbitrator issued a partial award and ruled that the agreement permitted classwide arbitration, RHI moved the district court to vacate the award, which the court denied.  The issue before the Third Circuit was not whether the agreement between the parties permitted classwide arbitration, but whether, in the context of an otherwise silent agreement, the availability of classwide arbitration should have been decided by the arbitrator or the court.

The Third Circuit noted that because arbitration is a matter of contract, an arbitrator has the power to decide an issue only if the parties have authorized the arbitrator to do so.  Thus, the Court had to decide whether the issue before it was more of a procedural issue—which the parties likely expect an arbitrator to decide—or a question of arbitrability, a/k/a “gateway issue”—which a court must decide.  The Court found that the availability of class arbitration implicates whose claims the arbitrator may resolve as well as the type of controversy an arbitrator can resolve, and thus, that the availability of class arbitration is a question of arbitrability for the court to decide.  It reasoned that class arbitration is both procedurally and substantively different from individual arbitration, and it cannot be presumed that the parties consented to it simply by agreeing to submit their disputes to an arbitrator.

The Third Circuit’s opinion is in line with that of the Sixth Circuit, the only other Circuit Court of Appeals to decide the “who decides” issue.  Because the majority of courts now uphold arbitration agreements that expressly preclude class claims altogether, employers can avoid litigation over arbitrability if they simply update their arbitration agreements accordingly.

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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