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Lamps Plus Decision Destroys Ambiguous Class Arbitration

By George Khoury, Esq. | Last updated on

The recent SCOTUS ruling in the Lamps Plus v. Varela case may not say much about the merits of the plaintiff’s claim, but it certainly sends a clear message to employers: The High Court’s conservative majority is on their side, at least when it comes to arbitration.

But ask any lawyer, and they’ll tell you, arbitration can be just as frustrating, if not more so, than actual litigation. If you’ve ever had to fight over whether your case belongs in court or arbitration, you might know all too well how much more frustrating it can be to have to litigate tangential issues that don’t even touch the merits of the underlying case. And if you ask Frank Varela, the plaintiff in the recent arbitration decision from the High Court, he’d likely be able to tell you just how frustrating it can be.

Arbitration Frustration

The underlying case involves an unusual, but seemingly simple, claim filed by an employee against his employer because another employee fell victim to a hacker’s phishing attack, and the plaintiff employee (along with hundreds of other employees’) tax info was stolen. Varela filed his case as a class action on behalf of himself and other employees. His employer fought the filing of the case on the grounds that Varela was limited to arbitration based on his employment contract.

On appeal, the Ninth Circuit seemed to agree that Varela was limited to arbitration, but ruled that he could proceed with class arbitration. Lamps Plus appealed the Ninth Circuit’s ruling to SCOTUS, seeking relief on the basis that class arbitration is not permitted by the contract terms, and they had sought to limit Varela to individual arbitration.

Supreme Frustration

The majority opinion agreed with the employer, finding that the Ninth Circuit erred in construing the vagueness of arbitration clause in favor of the plaintiff to permit class arbitration. The Chief Justice, writing for the majority, explained that under the Federal Arbitration Act, parties must consent to arbitration affirmatively, such that ambiguity or silence must infer a lack of consent to arbitration. In Varela’s case, this means that his employer did not consent to be bound to class arbitration.

Compounding Varela’s likely frustration, the High Court didn’t end his case, or even send it directly to individual arbitration. It was remanded for the lower courts to figure out what comes next.

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