WASHINGTON — A split Supreme Court delivered a win to business owners earlier this week, saying workers cannot band together in arbitration proceedings unless their employment contracts specifically allow it.
Chief Justice John Roberts, writing for the court’s conservative majority in the 5-to-4 decision, said because class arbitration is fundamentally different from individual proceedings, it must be expressly agreed to by an employer in the contract.
“Neither silence nor ambiguity provides a sufficient basis” for concluding there is a right to class arbitration, Roberts wrote.
Many companies prefer to settle differences through arbitration rather than court proceedings because it is faster and less likely to result in large financial awards for aggrieved employees.
Arbitration clauses have become increasingly common in employee contracts and in the fine-print agreements consumers sign.
The court’s four liberal justices are concerned enough about the trend — and the Supreme Court’s endorsement of it — that each registered a dissent in Tuesday’s opinion.
Justice Ruth Bader Ginsburg said she wrote to “emphasize once again how treacherously the court has strayed from the principle that arbitration is a matter of consent, not coercion.”
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The case involved a California company, Lamps Plus. In 2016, a hacker tricked an employee into disclosing the tax information of about 1,300 employees.
Soon afterward, Lamps Plus employee Frank Varela found that a fraudulent federal income tax return had been filed in his name.
As with most of the company’s employees, Varela had signed an arbitration agreement when he began work.
But he filed suit against the company in federal court, bringing state and federal claims on behalf of himself and others whose tax information was stolen.
The court said Varela’s complaint had to be handled through arbitration but could proceed as a class. The U.S. Court of Appeals for the 9th Circuit agreed, saying that because Varela’s contract was ambiguous, California law allowed the class arbitration to proceed.
But Roberts said that was wrong, and Tuesday’s decision follows a 2010 ruling that class arbitration is not allowed if a contract is silent on the subject.
“Class arbitration is not only markedly different” from individual arbitration contemplated by the Federal Arbitration Act, Roberts wrote, “it also undermines the most important benefits of that familiar form of arbitration.
“The statute therefore requires more than ambiguity to ensure that the parties actually agreed to arbitrate on a class-wide basis.”