Supreme Court Upholds Decision Approving Class Action Arbitration

Yesterday, in Oxford Health Plans LLC v. Sutter, the United States Supreme Court issued a unanimous opinion affirming the arbitrator's construction of an arbitration agreement that did not expressly address class actions. The parties had agreed to allow the arbitrator to decide this issue. The arbitrator ruled that broad language in the arbitration agreement addressing causes of action and remedies in arbitration permitted class arbitration. The Supreme Court, while not necessarily agreeing with the arbitrator's rationale, held that the arbitrator's decision under Section 10(a)(4) of the Federal Arbitration Act could not be disturbed unless the arbitrator "strayed from his delegated task of interpreting a contract" and imposed his own policy choice. "All we say is that convincing a court of an arbitrator's error—even his grave error—is not enough. So long as the arbitrator was 'arguably construing' the contract—which this one was—a court may not correct his mistakes under §10(a)(4)."

After concluding that the price of agreeing to arbitration is the potential for mistakes by the arbitrator, Justice Kagan wrote that the "arbitrator's construction holds, however good, bad, or ugly." Because the parties had agreed to allow the arbitrator to decide whether the agreement permitted class arbitration, the Supreme Court did not decide and expressly held open the issue of whether the availability of class arbitration is a question for the court or the arbitrator in the first instance.

This decision reiterates the perils of leaving the issue of class arbitration unaddressed or "silent" in an arbitration agreement and then allowing the arbitrator to decide the issue. So long as the arbitrator purports to interpret the agreement, the interpretation will not be disturbed. Businesses should review their existing arbitration policies and implement express class action waivers, which are enforceable under the Supreme Court's decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011). A more in-depth analysis of this decision and its implications for employers can be found here.

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