It is time to carefully review arbitration agreements and class action waivers.
A few days ago the California Supreme Court delivered its highly anticipated ruling in the Sandquist v. Lebo Automotive case on the issue of whether it is the court or the arbitrator who decides whether an employment law case can proceed as a class action, or whether the plaintiff can only proceed on an individual basis.
Sandquist was filed as a discrimination claim by an employee who pled both individual and class claims against his employer. The plaintiff employee had signed an arbitration agreement. The defendant employer filed a motion to compel arbitration, and dismiss the class action.
The trial court granted the employer’s motion and dismissed the class claim because it found the plaintiff was bound to an individual arbitration, and thus could not pursue a claim on behalf of a larger class of employees.
The plaintiff appealed the decision – most notably 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 claim.
We previously reported the Court of Appeal’s decision on this case, when it ruled that the arbitrator is the one who decides the issue of whether a class claim may proceed in the arbitral forum. The California Supreme Court has now affirmed the decision by the appellate court, but fortunately for employers, it did not go quite as far.
Instead of adopting the appellate court’s reasoning that the arbitrator is empowered to make this decision “in light of the fact that a class action is a procedural device,” the Supreme Court found that the issue must be resolved based on contractual principles and must be evaluated on a specific case by case basis.
The Supreme Court opined that “there was no universal rule,” but rather the issue of who decides is a matter of agreement between the employer-employee parties, subject to interpretation under state law principles that govern the formation of contracts.
In applying this contractual analysis, the Supreme Court found that the construction and interpretation of the Sandquist agreement supported the finding that the decision belonged to the arbitrator in that specific case.
However, employers can take a lesson from Sandquist. Because the Supreme Court has ruled that the courts must conduct a case by case analysis based on principles of contract law, employers are still in a position, and have the tools, to take steps to safeguard themselves from being subject to class arbitrations.
Employers should therefore take a close look at their arbitration and class action waiver agreements to make sure the terms of waiver of the employee’s right to initiate or participate in a class claims (including in the arbitral forum) are definitive and not ambiguous. Employers should further review their agreements to make sure the resolution of any potential ambiguity or discrepancy pertaining to arbitrability is a decision expressly empowered to the court and not to the arbitrator.
If you have any questions about this ruling or concerns about your current arbitration agreements, please feel free to contact us to discuss.