April 24, 2019; New York Times
Whose consent counts, and whose can be ignored? That question has been resolved—and not in a good way—in a US Supreme Court case, Lamps Plus v. Varela, decided yesterday. In a five-to-four split, the Court weighed in on yet one more way to curtail the rights of workers to organize.
The case involves a data breach of the tax filings of 1,300 Lamps Plus employees, with the hacker using the data obtained to file fraudulent returns. As Adam Liptak in the New York Times explains, Frank Varela, one of those employees, filed a class action suit on behalf of himself and the 1,300 other affected coworkers, accusing Lamps Plus of negligence in failing to protect employee data.
Varela’s employment contract mandated arbitration, so a California judge remanded the case accordingly. The judge, however, reviewed the contract and said the 1,300 workers’ cases could be treated by the arbitration body as a single class.
Lamps Plus appealed, demanding that Varela’s case be treated individually, even though 1,300 workers were affected. Varela and his coworkers, however, prevailed in a split decision among a three-person panel of the US Court of Appeals for the Ninth Circuit. According to the Ninth Circuit majority, because the arbitration clause did not ban a collective case, it was permitted. In particular, the Ninth Circuit applied a doctrine known as contra proferentem; this doctrine says that if ambiguity exists, then the court should rule against the contract drafter—in this case, the employer, Lamps Plus.
This week at the US Supreme Court, however, a 5-4 court majority led by Chief Justice Roberts reversed that decision and said that only individual arbitrations were allowed. And yes, the 5-4 split was along the lines you might imagine. Favoring Lamps Plus were Roberts, Clarence Thomas, Samuel Alito, Neil Gorsuch, and Brett Kavanaugh. Siding with Varela were justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan.
The logic of the court’s decision speaks to the Kafkaesque world that arbitration clauses often involve. According to the court majority, the wish of Varela and his coworkers to have their claims heard collectively must be denied because “the first principle that underscores all of our arbitration decisions” is that they must be about “strictly a matter of consent.” The employment contract at Lamps Plus was silent on whether or not class arbitration was permitted. The court majority held, therefore, that the company had not consented to class arbitration—only to the individual arbitration that Lamps Plus said in court that it wanted.
But the idea that arbitration is strictly a matter of consent is laughable. After all, Varela and his coworkers surely would have preferred to avoid arbitration altogether. How do we know this? Well, the fact that they went directly to court in spite of the arbitration clause in their contracts is a clue. The employees “consented” to arbitration only in the sense that they decided it was better to be employed than have no jobs at all.
As Justice Ruth Bader Ginsburg reminds us in her dissent, arbitration was initially intended as a means for disputes between businesses, which were assumed to have roughly equal power. But Ginsburg adds:
In relatively recent years, [the US Supreme Court] has routinely deployed the law to deny to employees and consumers “effective relief against powerful economic entities… Arbitration clauses, the Court has decreed, may preclude judicial remedies even when submission to arbitration is made a take-it-or-leave-it condition of employment or is imposed on a consumer given no genuine choice in the matter… Propelled by the Court’s decisions, mandatory arbitration clauses in employment and consumer contracts have proliferated.
And in case after case, workers therefore are disadvantaged in making their claims. NPQ has written before about the many nefarious consequences of forced arbitration, including regarding how arbitration clauses can be a powerful means to prevent successful prosecution of sexual harassment cases.
As for the workers at Lamps Plus, the result, as Ginsburg explains, is as follows:
Today’s decision underscores the irony of invoking “the first principle” that “arbitration is strictly a matter of consent”…to justify imposing individual arbitration on employees who surely would not choose to proceed solo. Respondent Frank Varela sought redress for negligence by his employer leading to a data breach affecting 1,300 employees.…The widely experienced neglect he identified cries out for collective treatment.…Shut from the Court’s sight is the “Hobson’s choice” employees face: “accept arbitration on their employer’s terms or give up their jobs.”