Class Arbitration - Who Decides Whether It Exists?

Written by Galen T. Shimoda and Erika R. C. Sembrano

Arbitration is a way for parties to resolve their legal claims. Instead of going to court, parties can contract to go to arbitration. It can be used as a voluntary mechanism, where contracting parties simply agree to use arbitration to resolve their claims. However, in the employment realm, it seems that arbitration has become the norm, usually imposed by employers. As each day passes, more and more employers understand the risk and benefits associated with arbitration and – knowing this – they choose to require their employees to sign arbitration agreements. Employees are usually hesitant about entering into such a contract, which is understandable since arbitration is a word not known to many outside of the legal world.

Moreover, there is a lot of leeway in what types of claims are submitted to the arbitrator. Typically, however, employers seek that any and all types of claims (for example, wage and hour, discrimination) are subject to arbitration. This means that the arbitrator will decide the outcome of these various types of cases. Where this becomes more complicated is where an employee seeks to bring a class action. In California, class claims can be waived via an arbitration contract that is not required as a condition of employment. This means that if an arbitration agreement says “no class claims,” then this is allowed and the employee cannot assert claims on behalf of other employees. This is another big advantage that appeals to employers who have arbitration agreements. Indeed, filing a class action in civil court is generally entirely permissible and the potential amount of damages the employees can recover is vast.

Despite the amount of litigation concerning whether class actions can be waived through an arbitration agreement, another question arose: who (court or arbitrator) decides whether an arbitration agreement allows for class arbitration? Thus, even though class claims can be waived through an arbitration agreement, not all arbitration agreements are clear as to whether class claims are in fact waived.

In a recent California Supreme Court case, Sandquist v. Lebo Automotive, Inc., the California Supreme Court addressed this exact question. The employee had signed three (3) different arbitration agreements with the former employer, all of which generally allowed for binding arbitration of “any claim, dispute, and/or controversy . . . arising from, related to , or having any relationship or connection whatsoever with [employment].” On this basis alone, one would think that this allows for any issues, including who decides whether class claims are included, to be for the arbitrator’s review, not the court’s. The Court further acknowledged that any doubts should be resolved in favor of arbitration, essentially meaning that “when in doubt, choose arbitration.” In the end, the Court decided that the employer’s arbitration agreements should be submitted to the arbitrator, who would then decide whether the arbitration agreement allows class claims.

This result makes it clearer for parties to understand who to turn to if an arbitration agreement is clear. Indeed, Sandquist only discusses who decides whether an arbitration agreement encompasses class claims, but to the extent there is further ambiguity in regard to other claims, it will be no surprise that parties will use Sandquist in order to show that the arbitrator, not the court, decides any of the parties’ questions. An advantage of going to the arbitrator are, again, review not through the court system per se, but instead through an arbitrator whose schedule may be more flexible than the court. A disadvantage is, of course, the increased costs to the party paying for arbitration-related fees and costs. Regardless, we now have a clearer answer as to who will decide key issues regarding the arbitration agreement self.

It is important to note that the Court relied heavily on contract interpretation principles. Specifically, the intent of the parties to the arbitration agreement matters greatly and the language in the contract itself matters greatly. Usually, employers want to avoid any class action if it can, but to the extent that employers are not careful, the lack of clear language in the agreement can increase costs and fees just to decide whether certain claims can be brought. Employees, on the other hand, should scrutinize their arbitration agreements, especially if they contemplate bringing any claims against their employer.

Overall, if an employer wants to waive any class actions, it should state so clearly in its arbitration agreement. If the arbitration agreement does not mention anything about class actions, it is more than likely that an employee (assuming he/she purports valid potential class-wide claims) will seek declaratory relief that a he/she can bring class claims, even if it is through arbitration. All in all, if there is ambiguity in the arbitration agreement regarding who decides whether a party can bring class claims, the arbitrator will have the authority to decide this question.

If you have any questions about arbitration or have an arbitration agreement that you do not fully understand, you can contact our office to discuss your situation.

The Shimoda Law Corp. legal articles should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents of these articles are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have.

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