|August 8, 2014|
Previously published on August 7, 2014
The U.S. Court of Appeals for the Third Circuit ruled last week that courts, not arbitrators, should determine whether an agreement between two parties to arbitrate employment disputes allows for classwide arbitration.
“Because of the fundamental differences between classwide and individual arbitration, and the consequences of proceeding with one rather than the other, we hold that the availability of classwide arbitration is a substantive ‘question of arbitrability’ to be decided by a court absent clear agreement otherwise,” the appeals court held in Opalinski v. Robert Half International Inc., Case No. 12-4444 (3d Cir. July 30, 2014).
The three-judge panel declined to rule on the issue of whether classwide arbitration was actually permitted by the underlying arbitration agreements in question, which were silent on the topic. That question was sent back to the trial court for consideration.
The issue presented to the Third Circuit arose from a class action overtime claim filed by former employees of staffing agency Robert Half under the Fair Labor Standards Act. When the employees (who had individually signed employment agreements containing arbitration provisions) filed their overtime action as a class, Robert Half argued that arbitration should be compelled on an individual basis. While a federal court in New Jersey did compel individual arbitration in 2011, the court ruled that it was up to the arbitrator to decide whether classwide arbitration was available. In 2012, the arbitrator in that suit held that classwide arbitration was permissible, and Robert Half’s attempt to vacate that decision later in the year was denied by the district court.
The Third Circuit’s July 30 decision reversed the district court’s initial ruling that the availability of class arbitration under an arbitration agreement was a matter for arbitrators to decide. In overruling the lower court, the Third Circuit explained that “it is presumed that courts must decide questions of arbitrability unless the parties clearly and unmistakably provide otherwise.”
With its decision, the Third Circuit joins the U.S. Court of Appeals for the Sixth Circuit in ruling that courts, not arbitrators, should determine whether classwide arbitration is permissible under an arbitration agreement. Although these rulings provide employers with additional protection from classwide arbitration, employers should still ensure that their arbitration agreements include an explicit class waiver if they wish to avoid classwide arbitration.