United States: Class Action Waivers: Silence May NOT Be Golden

Since when does silence in a contract speak louder than words? The United States Supreme Court will soon answer this question in deciding whether an arbitration agreement between an employer and its employees can authorize a class action arbitration proceeding when the agreement is silent as to the issue. Employees with arbitration agreements that contain only general language — agreeing to arbitration of employment-related claims that arise out of the individual employee's employment with the employer — will be watching this decision carefully to see whether the Court finds that employers, through silence (without a word in the agreement that authorizes "class" or collective actions," or who can be a "class representative" for a group of employees who claim to have been harmed), inadvertently agree to arbitrate not only an employee's individual claims but that of a class. So . . . how did this issue arise when the Court's holding and reasoning in a 2010 decision, Stolt-Nielsen, S.A. v. Animal Feeds Int'l Corp., 559 U.S. 662 (2010), appears to hold otherwise? Well, basically by the 9th Circuit Court of Appeals parsing the definition of "silence." In a 2017 decision in Varela v. Lamps Plus, Inc., the Ninth Circuit affirmed the district court's order compelling a class-wide arbitration based on a silent agreement by explaining that the Supreme Court's decision in Stolt-Nielsen "accepted the parties' stipulation" that silence meant that no agreement has been reached. Therefore, the Court concluded that the fact that an arbitration clause "does not expressly refer to class arbitration is not the 'silence' contemplated in Stolt-Nielsen."

A little background on the Valera case. The arbitration clause subject to arbitration in Varela provided that "arbitration shall be in lieu of any and all lawsuits or other legal proceedings related to my employment." The Ninth Circuit read this language to be subject to two reasonable interpretations on whether class arbitration was authorized and then went one step further to conclude that "the reasonable interpretation of this expansive language is that it authorizes class arbitration." Finally, the Court reasoned that because there were two reasonable interpretations of the agreement, it was actually ambiguous (not silent) and as such should be interpreted against the employer who drafted the agreement.

So now what? The Supreme Court has recently addressed whether class and collective action waivers in arbitrations agreements are enforceable under the Federal Arbitration Act and provided employers with valuable tips for crafting future arbitration agreements. Varela's applicability, on the other hand, seems to impact only employers who are operating under existing arbitration agreements that are silent on class arbitrations. Up until now, most employers have relied on these agreements permitting only individual claims to proceed in arbitration. If the Valera decision is affirmed, employers will learn a tough lesson: Silence can speak louder than words. The result would be that employers would have to specifically exclude and include what is covered and what is not covered in their arbitration agreements in order to avoid the risk of silence being held against them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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