The Washington PostDemocracy Dies in Darkness

Divided Supreme Court sides with business owners over workers in class arbitration ruling

Chief Justice John G. Roberts Jr. wrote for the court’s conservatives in the 5 to 4 decision. (Andrew Harnik/AP)

A split Supreme Court delivered a win to business owners Tuesday, saying that workers cannot band together in arbitration proceedings unless their employment contracts specifically allow it.

Chief Justice John G. Roberts Jr., writing for the court’s conservatives 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 , wrote Roberts.

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.”

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 after, Lamps Plus employee Frank Varela found that a fraudulent federal income tax return had been filed in his name.

Like 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 classwide basis.”

Roberts’s 13-page opinion prompted 31 pages of dissent.

Justice Elena Kagan wrote the principal one. She disputed that Varela’s employment contract was ambiguous and said that when Varela agreed to submit “any and all disputes, claims, or controversies” to arbitration, that covered both individual and class actions.

Even if it was ambiguous, Kagan wrote, California law requires that ambiguities be resolved against the party that writes the contract.

“Lamps Plus drafted the agreement,” she wrote. “It therefore had the opportunity to insert language expressly barring class arbitration if that was what it wanted. It did not do so.”

Ginsburg wrote that the decision was another in a line of arbitration decisions by the court that “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,” Ginsburg wrote.

The case is Lamps Plus Inc. v. Varela.