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Arbitration Agreements Must Be Clear About Class Action Claims

The U.S. Supreme Court issued a ruling holding that the Federal Arbitration Act (FAA) does not allow a court to compel class arbitration without explicit agreement by both parties.

Following a 2016 data breach of Lamps Plus employee information, an employee filed a class action lawsuit for claims arising out of the breach. Lamps Plus sought to compel individual arbitration of the employee’s claims based on the signed arbitration agreement and argued against class action arbitration. The Ninth Circuit Court of Appeals ruled that the employee was required to arbitrate his claims but he could proceed with a class action in arbitration, finding the silence in the arbitration agreement as to class actions had to be construed against the drafter, Lamps Plus.
The Supreme Court disagreed, determining that the parties may not be coerced into arbitration, that it is a matter of consent.

“Class arbitration is not only ‘markedly different’ from the ‘traditional individualized arbitration’ contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration. The statute therefore requires more than ambiguity to ensure that the parties actually agreed to arbitrate on a class-wide basis.”

In making its ruling, the Court stated that “an ambiguous agreement cannot provide the necessary contractual basis for concluding the parties agreed to submit to class arbitration.” This ruling is expected to make it more difficult for employees to pursue class actions and class-wide arbitrations.