No Class Action Arbitration Unless in Agreement, Says Supreme Court

Some employers have agreements with their employees that if there’s a dispute, it will be submitted to arbitration. This has always been a matter of controversy, as lawyers who represent employees argue that an employee shouldn’t be forced to give up her right to go into court. Not all employers and their lawyers think that these agreements are necessarily good. Before an employer goes down that path, it should think carefully about all the implications and seek legal counsel.

One question that has caused more controversy is whether a dispute brought on behalf of a group of employees as a class action can be subject to arbitration. In Stolt-Nielsen v. AnimalFeeds International, the U.S. Supreme Court has ruled that under the Federal Arbitration Act, a party can’t be forced to arbitrate a class action unless the agreement in question specifically says that it applies to class actions. Though Stolt involved a maritime dispute, it would seem to apply to an employment case in the same way.

There’s even more disagreement among lawyers and employers about whether class actions should be covered by an arbitration agreement. For the time being, if the agreement doesn’t say it applies to class cases, then it doesn’t. Does this mean that employers should rush out and add class actions to their arbitration agreements? Absolutely not. It means that employers should, with their employment counsel, consider the implications of submitting a class case to arbitration. It’s one thing to agree that a dispute with an individual employee will be submitted to arbitration. It’s another to agree that a dispute with a large group of employees will be submitted to arbitration.

Stay tuned for more developments, including possible Congressional action. For more on the Stolt decision, see Ross Runkel, Jottings By An Employer’s Lawyer, and Workplace Prof Blog.