Class Action Defense

In a precedential ruling, the U.S. Court of Appeals for the Third Circuit in Opalinski v. Robert Half Int’l recently held that a federal judge—not an arbitrator—should decide whether an agreement between individuals to arbitrate employment disputes should extend to class-wide arbitration. 2014 U.S. App. LEXIS 14538 (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 alleging they were misclassified as exempt employees. Both plaintiffs had signed employment agreements with arbitration provisions that were silent as to whether class-wide arbitration was permitted. And while the United States District Court for the District of New Jersey granted RHI’s motion to compel arbitration, it also held the availability of class-wide arbitration was a question for the arbitrator.

Based on the “fundamental differences between class-wide and individual arbitration,” and the “consequences of proceeding with one rather than the other,” the Third Circuit determined the availability of class-wide arbitration was a “substantive ‘question of arbitrability’ to be decided by a court absent clear agreement otherwise.” Id. at *2.

The main takeaway from Opalinski is arbitration of class disputes is itself an issue of arbitrability to be decided by a court, rather than an arbitrator. But its implications extend much further. For instance, the decision also suggests arbitration is not a favored method of handling class-wide disputes. Like the Third Circuit, the Supreme Court similarly emphasized how “changes brought about by the shift from bilateral [i.e., individual] arbitration to class-action arbitration are fundamental,” and that class-wide arbitration “is not arbitration as envisioned by the [Federal Arbitration Act].” Id. at *16 (citing AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1750 (2011)) (emphasis supplied).

Arbitration is a creature of contract. Parties thus have the ability to delineate, among other things: (1) an arbitrator’s authority; (2) the type of claims subject to arbitration; and (3) the persons/entities subject to arbitration. Practically speaking, parties wishing to limit the type of claims subject to arbitration may wish to expressly divest arbitrators of the authority to decide claims on a class-wide basis and/or include a waiver of the right to pursue arbitration on a class, collective, aggregate, or representative basis. Parties should affirmatively state such intentions so as to avoid class-wide arbitration.