Steven Suflas (Steven Bayles (www.vtiphoto.com))
The U.S. Court of Appeals for the Third Circuit ruled July 30 that a federal judge, not an arbitrator, should make the call on whether an agreement between individuals to arbitrate employment disputes should extend to classwide arbitration.
Deciding whether arbitration should apply to a class is not solely a question of procedure but is “a substantive gateway dispute qualitatively separate from deciding an individual quarrel,” the appeals court said.
An arbitrator’s authority is derived from an agreement to arbitrate, and where a contract to arbitrate individual disputes is silent on arbitration for a wider group, “the parties would have expected a court, not an arbitrator, to determine the availability of class arbitration,” the appeals court said in Opalinski v. Robert Half International Inc.
Steven Suflas, a management-side labor and employment lawyer at Ballard Spahr in Cherry Hill, N.J., who was not involved in the case, called the ruling “a case that will resonate.”
He said it was “a really well-written, clear, precise opinion” that falls in line with the U.S. Court of Appeals for the Sixth Circuit’s similar decision in the 2013 case Reed Elsevier v. Crockett.
Suflas said arbitrating class actions can be “a mess,” and added that “arbitrators lack the experience [and] lack the familiarity to deal with class-actions issues.”
In federal court, Suflas said, “procedures are pretty clear. Progression of the case is managed better.”
The Opalinski ruling’s bottom line is that arbitration of class disputes is itself an issue of arbitrability to be decided by a court rather than an arbitrator, according to Theresa Kelly, a management-side labor and employment lawyer at Day Pitney in Parsippany, N.J., who also was not involved in the case.
The decision said arbitration is a matter of contract and “it’s crucial that we respect the expectations of the parties when entering into an arbitration agreement,” Kelly said.
But the decision also suggests that arbitration is not a favored method of dealing with class-wide disputes, Kelly said.
“The Third Circuit concludes in fairly strong terms that class-wide arbitration may not be appropriate in all cases and whether to proceed with a class-wide arbitration should be decided by a court when the parties clearly agreed to it,” Kelly said.
While arbitration offers many cost savings to litigants and is faster and more confidential than going to court, in a high-stakes case such as a class action, litigation may be better for an employer because of the broader rights to appeal, Kelly said.
Because it is critically different from individual arbitration, class arbitration is part of the narrow range of gateway issues considered “a question of arbitrability,” and therefore subject to judicial determination unless the parties clearly and unmistakably provide otherwise, the court said.
The ruling in Opalinski reversed a decision by U.S. District Judge Faith Hochberg of the District of New Jersey that denied the defendants’ motion to vacate an arbitrator’s ruling that arbitration clauses in employment agreements by two named plaintiffs in a wage-and-hour class action should be extended to members of the class.
The plaintiffs, David Opalinski and James McCabe, are former employees of human resource consulting firm Robert Half International who brought a class action on behalf of themselves and others who claimed they were improperly classified as exempt and denied overtime pay in violation of the Fair Labor Standards Act. Both signed employment contracts containing provisions requiring any dispute arising out of their employment to be submitted to arbitration. The agreements do not mention class-wide arbitration, according to court documents.
In 2011, Hochberg granted Robert Half’s motion to compel arbitration of the individual claims of Opalinski and McCabe, and held that the arbitrator would decide whether the arbitration would encompass the entire class or just the two individual plaintiffs. The arbitrator ruled that the employment agreements permitted class arbitration. Robert Half moved before Hochberg to vacate the arbitrator’s ruling, but she denied it.
Robert Half brought an appeal—not on whether the plaintiffs’ arbitration agreements permit class-wide arbitration, but on whether the availability of class-wide arbitration is a matter for an arbitrator or a judge to decide.
On appeal, the panel, led by Judge Thomas Ambro and including Judges Kent Jordan and Jane Roth, noted that other courts have taken varying positions on the issue.
In 2003, a plurality of the U.S. Supreme Court ruled in Green Tree Financial Corp. v. Bazzle that the availability of class-wide arbitration is not a question of arbitrability, but subsequent decisions by the court have cast doubt on Bazzle, the appeals court said.
And, in 2012, the Third Circuit ruled in Quilloin v. Tennett Health Systemthat class-wide arbitration was not a question of arbitrability. But that decision was dicta that relied on Stolt-Nielsen S.A. v. Animal Feeds International Corp., a 2010 U.S. Supreme Court case that said the availability of class-wide arbitration is a question of substance, rather than procedure, Ambro wrote for the panel.
Courts should be wary of concluding that the availability of class-wide arbitration is for the arbitrator to decide, as that decision implicates the rights of absent class members without their consent, Ambro said. The availability of class-wide arbitration also is a question for a judge to decide because it concerns whether an arbitration clause applies to a certain type of controversy, Ambro said. A court may order arbitration of a particular dispute only if it is satisfied that the parties agreed to arbitrate that dispute, Ambro said.
The panel said it was persuaded by the Sixth Circuit, which said in Crockett that whether an arbitration agreement permits class-wide arbitration is a gateway matter that is presumptively for judicial determination.
The lawyers for Opalinski and McCabe argued that the First, Second and Eleventh circuits had ruled that the question of whether arbitration applies to a class is a question of procedure for an arbitrator to decide. But Ambro wrote for the panel that the cases those lawyers cited to support that proposition were mischaracterized.
Shannon Liss-Riordan of Lichten & Liss-Riordan in Boston, representing the plaintiffs, said she would move for an en banc rehearing of the case. She said the ruling was “quite shocking to me” because she considered the issue of who decides whether arbitration can apply to a class was resolved by the Supreme Court in the 2013 case Sutter v. Oxford Health Plans.
Liss-Riordan said Robert Half appeared to change its position midstream on whether arbitration should apply to the class—first it moved to compel arbitration and then, when the arbitrator ordered that the arbitration clause applied to the class, the company sought to vacate that ruling.
She said courts are becoming “more and more willing to let employers use these arbitration clauses to avoid repercussions when they engage in systemic violations of the wage laws. I think it’s a bad trend and I don’t think this is what Congress ever intended when it passed the Federal Arbitration Act.”
Richard Alfred of Seyfarth Shaw in Boston, who argued for Robert Half, did not return a call. Its local counsel, Adam Saravay of McCarter & English in Newark, declined to comment.
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