The U.S. Supreme Court voted to hear an appeal of the Ninth Circuit’s decision in Varela v. Lamps Plus, Inc. The Court is expected to decide whether workers can pursue their claims through class-wide arbitration when the underlying arbitration agreement is silent on the issue. The case could have wide-reaching consequences for employers who use arbitration agreements.
Many employers and employees sign agreements that they will resolve any legal claims through arbitration, which can be cheaper and faster than the traditional court system. Arbitration agreements often address whether an employee is permitted to pursue legal claims on a class basis. But what about agreements – like the one at issue in Lamps Plus – which are silent on the issue?
Varela filed a class action lawsuit in California federal court following a data breach. The trial court evaluated the arbitration agreement Varela had signed and sent his suit to arbitration, yet allowed him to proceed on a class basis. The company appealed the lower court’s decision. The Ninth Circuit affirmed, holding the arbitration agreement could be reasonably read to allow workers to pursue their claims as a class.
Now, the Supreme Court will decide whether an arbitration agreement that is silent on class arbitration can be read to permit such class-wide treatment.
We will continue to monitor the case’s progress and provide updates.
Regardless of the outcome, the Lamps Plus litigation serves as a reminder to employers of the importance of drafting effective and thorough arbitration agreements.
UPDATE: The Supreme Court’s opinion held 5-4 that class arbitration must be specifically authorized by the parties. Read more here.