*By Stephen S. Zashin
On April 27, 2010, the United State Supreme Court held that a party to an arbitration agreement may not be compelled to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to arbitrate class claims. The Supreme Court in effect vacated the decision of an arbitration panel allowing class claims under an arbitration clause that was silent on the issue on grounds that the panel’s decision was not based in the terms of the arbitration agreement, but on its own conception of “good policy.” In so doing, the Supreme Court reinforced the principle that parties to an arbitration agreement are only bound to arbitrate those claims falling within the terms of the agreement.
In Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., No. 08-1198 (April 27, 2010), the parties’ contract (the “Contract”) included an arbitration clause subjecting “any dispute” arising from the execution of the contract to arbitration in accord with the Federal Arbitration Act (the “FAA”). A party to the contract demanded class arbitration representing a class of claimants. The opposing party objected to the class arbitration demand and the parties agreed to submit the question of whether the arbitration clause permitted class arbitration to an arbitration panel (the “Panel”). At the outset, the parties stipulated that the arbitration clause was “silent” with regard to the question of class arbitration.
The arbitration panel concluded that because the evidence – including the terms of the Contract - did not show that the parties intended to preclude class arbitration, class claims were allowed. The panel stayed proceedings to allow the parties to seek vacatur or confirmation of its decision – which it described as a “partial final decision” - under the FAA.
After lengthy appeals, the U.S. Supreme Court granted certiorari on the issue of whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the FAA.
The Supreme Court concluded that instead of interpreting the arbitration agreement in light of law and industry practice, the panel simply imposed what it felt was sound policy and, in so doing, exceeded its powers. On this ground, the Supreme Court determined that the panel’s decision should be vacated and reversed. In doing so, the Supreme Court stressed that, under the FAA, arbitration was solely a matter of consent. As a result, the FAA forbids a party from being compelled to submit to class arbitration absent some contractual basis showing that it agreed to submit class claims disputes to arbitration. In this context, the Court reasoned, silence regarding class arbitration indicates that the parties did not intend to allow it.
In the end, Stodlt-Nielson clearly establishes that parties to a contract containing an arbitration clause that is silent with regard to class arbitration cannot be forced to submit to class arbitration absent some clear evidence of their intent to be bound.
What does this mean for employers? This decision strongly suggests that employers with established arbitration programs may enjoy significant protection against the class/collective actions so prevalent in employment litigation. As a result, all employers should consider whether to implement an arbitration program as a way of avoiding expensive class/collective employment actions in the future.
*Stephen S. Zashin is an OSBA Certified Specialist
in Labor and Employment Law has extensive experience in all aspects of
workplace law, including the development and administration mandatory
arbitration programs. For more information about mandatory arbitration
programs, please contact Stephen at 216.696.4441 or ssz@zrlaw.com.
