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U.S. Supreme Court Limits Class Action Arbitration

On April 24, 2019, the U.S. Supreme Court issued its opinion in the matter of Lamps Plus, Inc., et al. v. Varela. Varela, along with other co-employees, had been the victim of a fraudulent tax return that had been filed using information about the employees, acquired by a hacker. The employment agreement with Lamps Plus, contained a provision requiring arbitration of disputes between employees and the company.

Varela, the named class action representative, sought to proceed on a class action basis, including through the arbitration that was being compelled by the employer, Lamps Plus. The U.S. Supreme Court rejected the ability of the employees to proceed on a class action basis in arbitration. The Court found that the purpose of arbitration, and specifically as articulated in the Federal Arbitration Act, was to promote cost-effective resolution of individual claims, but the perceived lower cost of arbitration, versus a traditional court-based lawsuit, would be thwarted by allowing arbitrations of class actions.

The class action representative argued that although the arbitration clause in the employment agreement did not expressly permit employees to proceed on a class action basis, nor did it expressly preclude proceeding on a class action basis. The Supreme Court issued its decision on a 5-4 split, with the majority finding that the purposes of arbitration provisions would require that a class action be expressly permitted in an arbitration provision, with the four-justice dissent finding the opposite, that a class action should be deemed permitted in an arbitration, unless the arbitration provision explicitly prohibits it.

The Lamps Plus opinion represents a continuation of Supreme Court opinions that pose additional hurdles for persons who are subject to a contractual arbitration provision, to be able to proceed on a class action basis for recovery. A copy of the Lamps Plus opinion may be found at this link.

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