California Labor and Employment Defense Blog

"Silent" Arbitration Agreements are Consistently Found to Authorize Class Wide Arbitration

Conventional wisdom among defense counsel has long been that arbitration is the preferable forum for resolving individual employment disputes such as wrongful termination, discrimination and sexual harassment.  As a result, the number of employers with mandatory ADR programs skyrocketed in the 1990's and early 2000's.

By contrast, many defense counsel have come to believe that arbitration is a decidedly less favorable forum for employers when it comes to class-wide claims.  The main reason is that the lack of a jury or meaningful appellate review, combined with the more flexible procedural rules of arbitration are likely to result in class certification.   

Some employers have sought to have the "best of both worlds" by constructing arbitration programs which require arbitration of individual claims but exclude class actions from arbitration.  But as we have previously blogged, under Gentry v. Superior Court, California trial courts will generally refuse to enforce any sort of arbitration provision that attempts to bar class wide arbitration remedies

The majority of arbitration agreements are simply silent on the whole question of class arbitration.  As to these agreements, arbitrators consistently determine that they should be interpreted as allowing a class wide arbitration to take place (assuming, of course, that the arbitrator also finds that the case to be appropriate for class certification).  For example, in a very informative post from The Metropolitan Corporate Counsel, authors P. Christine Deruelle and Robert Clayton Roesch surveyed the actual decisions on this issue by neutrals with the American Arbitration Association ("AAA").  They concluded that "At bottom, AAA arbitrators have - almost without exception - construed otherwise silent arbitration agreements to permit class proceedings."  As the basis for their conclusion, the authors explained:

As of June 15, 2007, AAA arbitrators have rendered 51 Clause Construction Awards concerning otherwise silent arbitration agreements, and in all but two of those decisions, the arbitrators have allowed classwide proceedings. Three recurring rationales for interpreting an otherwise silent agreement to permit class arbitration appear in these AAA Clause Construction Awards: (i) if the parties intended to prohibit class arbitration, they could have included an express prohibition in their arbitration agreement to this effect; (ii) a misapprehension of Bazzle as specifically authorizing class arbitration where the applicable agreement is silent; and (iii) that silence regarding the propriety of class proceedings renders the agreement ambiguous, which requires that it be construed against the drafter, consistently resulting in a construction favoring class arbitration. In contrast to the 49 AAA Clause Construction Awards construing silence to permit class arbitration, only two such awards have reached the opposite conclusion.

Thus, the proliferation of employment class actions in recent years presents employers with a bit of a conundrum -- do the perceived benefits of arbitrating single plaintiff claims outweigh the perceived detriments of arbitrating employee class actions?

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