Kevin Daley, DCNF
The Supreme Court’s conservative majority put additional limits on classwide arbitration Wednesday, handing business interests a victory over a vigorous dissent from the four liberal justices.
The decision is the latest in a sequence of pro-arbitration decisions from the Supreme Court, which the liberal bloc believes have seriously undermined the rights of workers.
“The Court, paradoxically reciting the mantra that consent is essential, has facilitated companies’ efforts to deny employees and consumers the important right to sue in court, and to do so collectively, by inserting solo-arbitration-only clauses that parties lacking bargaining clout cannot remove,” Justice Ruth Bader Ginsburg wrote in dissent.
“When companies can muffle grievances in the cloakroom of arbitration, the result is inevitable: curtailed enforcement of laws designed to advance the well-being of the vulnerable,” she added.
The case arose in California when Frank Varela sued his employer, Lamps Plus, after a negligent employee revealed his personal tax information in a phishing scheme. Approximately 1,300 other workers were exposed to identity theft due to the error.
A federal district judge allowed Varela and other employees affected by the breach to band together against the company, authorizing classwide arbitration to resolve the dispute. The 9th U.S. Circuit Court of Appeals affirmed that decision, based on a legal rule requiring that ambiguities in a contract should be construed against the drafter, in this case, Lamps Plus. The company appealed to the Supreme Court, which heard arguments in October.
Writing for the majority, Chief Justice John Roberts agreed that the arbitration agreement was ambiguous. However, he said the Federal Arbitration Act (FAA) requires a clearer contractual basis to compel group arbitration.
“Ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to sacrifice the principal advantage of arbitration,” the chief justice wrote. He went on to say that group arbitration is costly, complicated and slow, thereby destroying the principle benefits of arbitration.
Elsewhere in the opinion, Roberts emphasized that consent is the animating principle of FAA cases, since arbitrators can only wield powers clearly given to them by the parties.
In dissent, Ginsburg said it was ironic for the majority to invoke consent, since few employees would choose to proceed alone in disputes against their employer. What’s more, she said the FAA as originally envisioned would apply to parties of relatively equal strength.
“Congress enacted the Federal Arbitration Act (FAA) in 1925 to enable merchants of roughly equal bargaining power to enter into binding agreements to arbitrate commercial disputes,” Ginsburg wrote. “The Act was not designed to govern contracts in which one of the parties characteristically has little bargaining power.”
Wednesday’s decision was the latest in a series of pro-arbitration decisions the high court has handed down in recent years. A five-justice majority in 2018 allowed employers to include mandatory individual arbitration clauses in employment contracts, rejecting arguments that such provisions are inconsistent with the National Labor Relations Act.
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