Employers have increasingly been including arbitration agreements in their contracts with their workers. These clauses require the worker to give up any right to sue their employer in court, instead of requiring them to pursue all legal disputes in arbitration, where employers have significant advantages over their workers.
Because arbitration was initially designed as a way to resolve disputes between businesses, it was not set up to handle classes of plaintiffs, and as a result, most people tend to interpret arbitration clauses as automatically banning class arbitration.
But a new data breach lawsuit filed against Lamps Plus alleges employees should be able to file class arbitrations, as long as the arbitration agreement does not specifically ban class arbitration.
The case involves a class of workers who are attempting to sue Lamps Plus for allegedly failing to properly secure their IRS information, which was stolen in a data breach. The case went before the U.S. District Court for the Central District of California, wherein the company tried to have the case moved to arbitration, but the plaintiffs claimed the arbitration agreement was invalid and asked to be certified as a class. The court partially ruled in favor of Lamps Plus by agreeing to enforce the arbitration agreement, but it also ruled that the case could go forward as a class arbitration.
The decision was appealed to the Ninth Circuit Court of Appeals, which agreed with the lower court to enforce the arbitration agreement, but on a class basis. That decision was further appealed to the U.S. Supreme Court, which has agreed to consider the case.
There isn’t much in the way of previous Supreme Court decisions on the matter, although the rulings that do exist are varied and contradictory. On the one hand, in AT&T Mobility LLC v. Concepcion, the court ruled that the Federal Arbitration Act precedes state laws banning arbitration agreements. On the other hand, the court’s 2010 ruling in the Stolt-Nielsen case said that the parties involved could not be forced into class arbitration unless a contractual basis existed for them to do so. But the decision also stated that the Stolt-Nielsen case did not define the contractual basis necessary for authorizing class arbitration.
Jeremy Heisler, an attorney representing the plaintiffs, has said in a statement that he is not optimistic about the chances of the court ruling in favor of class arbitration. Lately, the courts have been strongly in favor of arbitration over litigation, and he’s afraid that trend will continue in the current legal dispute between Lamps Plus and its employees.
Even if the court does allow for class arbitration, it’s not likely to make much of a difference in the long run. While most arbitration agreements as they exist today don’t specifically ban class arbitrations, if the Supreme Court rules in favor of class arbitrations, companies will probably start scrambling to include clauses that specifically ban class arbitration. Employees might reap the benefits of a favorable ruling for a short while between the decision and companies rewriting all their employment contracts, but they’ll have to act quickly.
At the same time, the Supreme Court is getting ready to rule on another case related to whether the provision of the National Labor Relations Act (NLRA) that guarantees employees the right to engage in concerted activity means employers can’t require them to waive their right to the class action. If the court rules in the plaintiffs’ favor in that case, it would render the case against Lamps Plus moot because the arbitration would not be allowed in any form.
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