Sandquist v. Lebo Automotive Inc. may seem like a typical employment lawsuit. However, it involves a very significant issue that has now been taken up to the California Supreme Court for resolution. The issue is who determines whether a class claim may be brought and heard before an arbitrator—the court or the arbitrator itself —when the arbitration agreement is unclear or silent as to whether class claims may be brought through arbitration. The high court’s ruling will potentially affect all employers.
The underlying facts of the Sandquist case revolve around a discrimination claim by an employee, pled as both individual and class claims. The plaintiff had signed an arbitration agreement, and as such, the defendant filed a motion to compel arbitration, which was granted by the court. Of significance is the court’s ruling that the plaintiff was bound to an individual arbitration claim and could not pursue a class claim at all.
The plaintiff appealed the dismissal of the class claim, arguing that because the matter was sent to arbitration, it is the arbitrator—and not the court—who must decide if the arbitration should proceed as a class action. The court of appeal agreed with the plaintiff and found that “in light of the fact that a class action is a procedural device,” the relevant legal authority empowers the arbitrator—not the court —to resolve procedural issues such as this.
A Role Reversal
The matter has now gone up the California Supreme Court. Whereas employers usually will champion arbitration proceedings, and plaintiffs will fight them, based on the novel issue presented here, the parties in this case undertook a significant role reversal because it is the defendant who is now challenging the arbitrator’s powers.
Counsel for the employer, Lebo Automotive Inc., argued that the complexity of class arbitrations is more than a simple procedural issue and therefore not proper for resolution by the arbitrator. The defense also argued that there is too much at stake financially to permit an arbitrator to make such decisions, which if made erroneously or improperly, cannot be appealed.
The Supreme Court’s ruling could have serious consequences on employer defendants. If the court rules that the arbitrator decides the issue of class claims and certification, then the arbitrator’s decision is not appealable.
The Supreme Court’s ruling could have serious consequences on employer defendants. If the court rules that the arbitrator decides the issue of class claims and certification, then the arbitrator’s decision is not appealable. Defense attorneys are concerned that an arbitrator who bills the parties for his time, may have more incentive to act as the neutral in a complicated and time intensive class action, rather than a simpler and less time intensive individual action. As such, the concern is that the arbitrator would be inclined to allow the matter to proceed as a class action.
Regardless of what the Supreme Court rules, the lesson to be learned from this is that the arbitration agreements prepared by employers for execution by their employees should be unambiguous and definitive—whether setting out a waiver of the employee’s right to initiate or participate in a class claim, or explicitly setting out that any potential class claims are not subject to arbitration. We will keep you apprised of the high court’s decision.