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eLABORate: Lamps Plus Decision Sheds Light on Class Arbitration Agreements

April 25, 2019

On April 24, 2019, the United States Supreme Court in Lamps Plus v. Varela held that employees cannot bring class-wide claims in arbitration if the underlying arbitration agreement does not clearly and explicitly authorize class proceedings.

In Lamps Plus, Plaintiff Frank Varela (Varela) filed a class action lawsuit against his employer Lamps Plus, Inc. (Lamps Plus) after Lamps Plus released Varela’s personal information in response to a phishing scam. Varela had signed an arbitration agreement as a condition of his employment with Lamps Plus, and after he filed suit, Lamps Plus filed a motion to compel Varela to litigate his claims in one-on-one arbitration. The U.S. District Court for the Central District of California forced Varela to proceed in arbitration but permitted him to pursue his claims on a class basis. Lamps Plus appealed, claiming that the district erred by compelling class arbitration, but the Ninth Circuit Court of Appeals upheld the ruling. The circuit court reasoned that the arbitration agreement was ambiguous as to class-wide arbitration and that, under California rules of contract interpretation, the agreement must be construed against the drafter Lamps Plus. By accepting this interpretation, the Ninth Circuit found the requisite “contractual basis” for concluding that the agreement permitted class arbitration under the Supreme Court’s Stolt-Nielsen S.A. holding.

On appeal, the Supreme Court reversed the Ninth Circuit and ruled that the arbitration agreement at issue did not allow class arbitration because it did not explicitly authorize Varela to pursue claims on a class basis. Writing for the majority, Chief Justice John G. Roberts noted that the Federal Arbitration Act (FAA) requires courts to “enforce arbitration agreements according to their terms.” Chief Justice Roberts explained that, even if the agreement was ambiguous, “Neither silence nor ambiguity provides a sufficient basis for concluding that parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself[.]” The Chief Justice held that inferring class arbitrations in agreements that are silent or ambiguous on class arbitrations is at odds with the goals of individual arbitration, which includes “lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes[.]”

Lamps Plus resolves a longstanding dispute over whether silence about class actions in an arbitration agreement can be read to allow class arbitrations. Together with the Court’s decision in Epic Systems, the Court has underscored the ability to insist on individual arbitration of employment claims under the FAA. Phelps has been at the forefront of this issue, click here for former articles regarding this supreme court decision.