After an employer allegedly released personally identifiable information of its employees as the result of a phishing scam, plaintiff employee filed a putative class action lawsuit, alleging claims including negligence, breach of contract, invasion of privacy, and other claims. The employer moved to compel bilateral arbitration pursuant to the arbitration agreement plaintiff signed in connection with his employment. The district court found that the arbitration agreement – which did not mention class-wide arbitration – was ambiguous as to class arbitration, and, as such, would be construed against the employer under California law. The district court thus allowed class-wide arbitration to proceed.
On appeal, the Ninth Circuit affirmed. Although acknowledging the Supreme Court’s finding in Stolt-Nielsen that under the Federal Arbitration Act, a party may not be compelled to submit to class arbitration unless “there is a contractual basis for concluding that the party agreed to do so,” the Ninth Circuit panel went on to find that the lack of an express reference to class arbitration was “not the ‘silence’ contemplated in Stolt-Nielsen.” As such, the Ninth Circuit construed the language “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment” as authorizing class arbitration and further found that its interpretation of that clause “require[d] no act of interpretive acrobatics” and was “the most reasonable” interpretation possible. The Ninth Circuit subsequently denied the employer’s motion for panel rehearing or rehearing en banc.
Will other circuits share the Ninth Circuit’s view? Stay tuned. In the meantime, employers should note that a generic arbitration clause may not preclude class-wide arbitration – at least in traditionally plaintiff-friendly jurisdictions. Moreover, as we have previously reported, the validity of express class action waiver clauses in employer/employee arbitration agreements is in dispute; the Supreme Court recently heard oral argument on consolidated petitions to resolve a circuit split on whether arbitration agreements that prohibit employees from pursuing work-related claims on a class basis violate the National Labor Relations Act. The Solicitor General has weighed in favoring the enforcement of such agreements. If the Supreme Court agrees, expect even more employers to add class action waivers to their employment arbitration agreements in an effort to limit litigation exposure and expense.
Varela v. Lamps Plus, Inc., No. 16-56085 (9th Cir. Aug. 3, 2017).
