In 2010, two employees filed a claim against their former employer, Robert Half International, Inc., alleging that it violated the Fair Labor Standards Act (“FLSA”). In addition to individual claims, the plaintiffs brought a collective action on behalf of all other similarly situated employees. The plaintiffs, however, had signed employment agreements containing arbitration clauses, which generally required that any dispute arising out of their employment be submitted to arbitration. It was silent as to class-wide claims.
The employer filed a motion to compel the employees to resolve their claims through arbitration on an individualized basis. The court ordered the employees to submit their claims to arbitration but left for the arbitrator to decide whether the claims could proceed on a class basis. The arbitrator subsequently ruled that class arbitration was permitted under the agreements. The employer appealed and argued that the question of whether the employees could submit claims to arbitration on a class-wide basis is one to be decided by the courts, not an arbitrator.
The First Shoe
The Third Circuit agreed. The court first explained that it is generally the province of the courts to resolve “questions of arbitrability.” That is, courts have narrow authority to decide whether or not an arbitration clause applies to particular claims and/or particular parties. On the other hand, arbitrators decide all issues they have been authorized by the parties to resolve. This includes procedural questions, and in traditional litigation, questions of class are procedural in nature. So, in this case, the court was presented with the following question: when an arbitration clause is silent as to arbitration on a class basis, is the permissibility of class arbitration a “question of arbitrability” to be decided by the court, or is it a procedural question to be decided by an arbitrator?
In a precedential opinion issued in 2014, the Third Circuit held that it was a question of arbitrability reserved for the court, because it was an issue of whether the clause applies to particular claims and/or parties. With this ruling, the Third Circuit then remanded the case to the district court to determine whether the employment agreements authorized class arbitration. On remand, finding no explicit language in the arbitration clauses, and finding no other evidence to the contrary, the district court found that class arbitration was not permitted under the agreement. The employees appealed.
The Other Shoe (sort of)
In a non-binding decision issued at the end of January, the Third Circuit agreed that class arbitration was not permitted. First, the court recognized that “a party may only be compelled to submit to class arbitration if there is a contractual basis for concluding that the party agreed to do so.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l, Inc., 559 U.S. 662, 684 (2010). To determine whether the parties agreed to class arbitration in this case, the court first looked for explicit language of authorization, noting that under Third Circuit precedent, “silence regarding class arbitrability generally indicates a prohibition.” Quillion v. Tenet HealthSystems Phila., Inc., 673 F.3d 221, 228 (3d Cir. 2012). It found no explicit language. Despite this finding and its precedent concerning the silence of class arbitration, the court did not stop there. It went on to look for implicit authorization elsewhere in the employment agreement. It again found nothing and affirmed that the agreement did not authorize class-wide arbitration.
While this ruling resolves this case and gives guidance moving forward, it does not definitively answer whether the absence of explicit language precludes class arbitration. To the contrary, the court’s analysis suggests that class arbitration could be inferred from other language in the employment agreement. So, going forward, to avoid a court making such an inference – one contrary to your true intent – inclusion of explicit language prohibiting class arbitration remains the best policy. However, you must be aware that the National Labor Relations Board takes the position that explicit prohibitions of class arbitration violate the National Labor Relations Act. Three courts of appeals, among other courts, have disagreed and overturned the Board’s position. Stay tuned, as the Supreme Court of the United States is set to resolve this question later this year.