The Supreme Court recently provided additional, employer-friendly guidance on arbitration agreements. SCOTUS held that a court cannot require classwide arbitration when the underlying arbitration agreement is “ambiguous” about the availability of such arbitration.

In Lamps Plus, Inc. v. Varela, Varela, a Lamps Plus employee brought an action on behalf of a similarly situated class of employees whose tax information had allegedly been compromised by the company. The company and employee had an arbitration agreement. The company moved to compel arbitration on an individual, rather than classwide basis, and to dismiss the lawsuit. The lower court granted the motion to compel arbitration but ordered classwide arbitration.

The Supreme Court reversed the decision, reiterating that the most important principle underscoring all of its arbitration decisions is that “arbitration is strictly a matter of consent.” The Court found a “fundamental” difference between classwide arbitration and individual arbitration. With classwide arbitration, the Court held, the positive aspects that Congress originally saw in arbitration, such as speed, cost-effectiveness, and simplicity, were lost and arbitration ended up looking like “the litigation it was meant to displace.” Accordingly, the parties have to expressly agree to classwide arbitration for it to be compelled.

Practically, this means that an ambiguous agreement will not be held against the drafter (i.e. the employer) and found to allow classwide arbitration unless the agreement is explicit on that point. This offers a bit more peace of mind for employers looking to enforce individual arbitration, but emphasizes the most important drafting rule for arbitration agreements: clarity is king.

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