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Courts, Not Arbitrators, Should Decide Class Arbitration Question

July 24, 2019

The question of whether class arbitration can proceed will be decided by courts and not arbitrators. That decision was made by the U.S. Court of Appeals for the Fifth Circuit in a case that put the spotlight on employee arbitration agreements.

The debate stems from class arbitration filed by a group of sales managers against a sales and marketing company under the Fair Labor Standards Act. The company claimed the employees waived their rights to class arbitration in their employment contracts. An arbitrator disagreed with those claims and ruled that the class arbitration could move forward before the Fifth Circuit overruled that decision.

In writing the Fifth Circuit opinion for 20/20 Commc’ns, Inc. v. Crawford, Judge James C. Ho called class arbitration a gateway issue that should be decided by a court, not an arbitrator. The Fifth Circuit joined six of its sister circuits to rule that courts have the final say in gateway issues unless the opposing parties clearly and unmistakably agree to have an arbitrator decide if class arbitration is allowed.

The Fifth Circuit found no agreement for the arbitrator to decide the issue. Therefore, the arbitrator’s decision to allow class arbitration was reversed.

The U.S. Supreme Court has yet to weigh in on the gateway issue but has ruled in similar arbitration agreement cases. In its 2018 groundbreaking decision in Epic Systems Corp. v. Lewis, the court held that arbitration agreements and class/collective action waivers are enforceable.

After Epic Systems and the Fifth Circuit ruling, more employers will likely attempt to enforce arbitration agreements that bar class arbitration. That decision will largely be made by a court unless the parties clearly and unmistakably agree to hand the issue to an arbitrator.