On April 24, 2019, the Supreme Court held that an ambiguous arbitration agreement that is silent as to class arbitration cannot provide the required contractual basis to support a finding that the parties agreed to submit a dispute to class arbitration. This decision is consistent with the Supreme Court’s 2010 landmark decision in Stolt-Nielsen v. Animalfeeds International Corp., which held that imposing class arbitration on parties who have not agreed to authorize such arbitration is inconsistent with the Federal Arbitration Act (FAA).
This matter was initiated when Plaintiff, an employee of the Defendant lighting sales company, commenced a class-action suit against his employer, alleging negligence, breach of contract, invasion of privacy, and other claims, based on Defendant’s release of its employees’ personal identifying information in a phishing scam. Incident to their employment, each of the company’s employees signed an agreement that included an arbitration clause. The clause was silent as to whether class arbitration was allowed. The company moved to compel bilateral arbitration with Plaintiff concerning his claims. Plaintiff and similarly-situated would-be class members argued they were entitled to class arbitration because the wording of the arbitration clause was broad and capacious enough to include class arbitration. The defendants argued that the agreement only contemplated “binary claims.”
On appeal, the Ninth Circuit found that the arbitration clause could easily be read to permit class arbitration because (i) the arbitration clause provides that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to [the employee’s] employment,” (ii) class actions are one of the means to resolving employment disputes in court, and (iii) arbitration would be in lieu of a set of actions that includes class actions. Additionally, the Ninth Circuit relied on a part of the clause entitled “Claims Covered by the Arbitration Provision,” which specified that “arbitrable claims are those that ‘would have been available to the parties by law.’” The Ninth Circuit reasoned that because Plaintiff waived his right to file a lawsuit related to his employment and the parties did not exclude from the claims covered “any class or collective proceedings,” the parties therefore must have agreed to permit class arbitration.
The Supreme Court reversed the Ninth Circuit’s opinion. Quoting Stolt-Nielsen, the court found that arbitration was “strictly a matter of consent,” and courts “may not infer consent to participate in class arbitration absent an affirmative ‘contractual basis for concluding that the party agreed to do so.’” The Court found that an agreement’s silence on an issue does not provide a sufficient basis to conclude that the parties agreed to give up or forego their consent to arbitrate. Therefore, the employee’s case must be arbitrated on an individual basis. In other words, courts are not allowed to infer from an ambiguous or silent agreement that parties have consented to class arbitration.