The Cases

The U.S. Supreme Court recently issued two important opinions addressing the arbitration of class actions—Oxford Health Plans LLC v. Sutter and American Express Co. v. Italian Colors Restaurant.

In Oxford Health Plans LLC v. Sutter, the Supreme Court addressed whether a party to an arbitration agreement could bring a class arbitration. There, because the arbitration agreement was silent on the issue, the parties asked the arbitrator to decide whether the agreement allowed class arbitration. After the arbitrator concluded that the agreement did so, Oxford Health Plans LLC (“Oxford Health”) moved to set aside the arbitrator’s decision under Section 10(a)(4) of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a)(4), which permits a court to set aside an arbitrator’s decision only “where the arbitrator[] exceeded [his] powers.”

Both the District Court and the Third Circuit Court of Appeals upheld the arbitrator’s decision. The Supreme Court unanimously affirmed, underscoring its limited scope of judicial review: “[C]ourts may vacate an arbitrator’s decision ‘only in very unusual circumstances.’” In fact, “[i]t is not enough…to show that the [arbitrator] committed an error—or even a serious error.” Instead, an arbitrator’s decision will stand so long as the arbitrator was “arguably construing the contract.”

In American Express Co. v. Italian Colors Restaurant the Supreme Court addressed whether a class arbitration waiver is enforceable in cases where the cost of individually arbitrating a federal statutory claim is not economically feasible. The Court held that courts cannot refuse to enforce an arbitration agreement precluding class arbitration because the cost of individually arbitrating a federal statutory claim exceeds the potential recovery. In so ruling, the Court has paved the way for enforcement of explicit class action waivers in employment agreements.

The Court emphasized the fact that because “arbitration is a matter of contract,” courts should “‘rigorously enforce’ arbitration agreements according to their terms,” absent a “contrary legislative command.” The Court found no contrary legislative command, noting that: (1) the antitrust laws “do not ‘evinc[e] an intention to preclude a waiver’ of class-action procedure”; and (2) “congressional approval of Rule 23 [does not] establish an entitlement to class proceedings for the vindication of statutory rights.” The Court then rejected the “effective vindication” doctrine, which courts previously used to invalidate class arbitration waivers where the waiver essentially prevented an individual from pursing a claim due to the expense involved, finding “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”

What This Means For Employers

The lessons learned from Oxford Health and American Express are clear—if employers want to avoid class arbitration, they should make this explicit in their arbitration agreements by including an express class action waiver. Alternatively, if the arbitration agreement is silent on the issue, employers should refuse to agree that the arbitrator has the authority to determine the availability of class arbitration. Otherwise, employers risk an unfavorable, and potentially incorrect, ruling from an arbitrator concerning the availability of class arbitration, with very limited rights to appeal.

Employers should consider reviewing and revising their arbitration agreements in light of both the Oxford Health and American Express decisions. If employers include express class arbitration waivers in their arbitration agreements with employees, the waivers can provide insulation from class arbitration, assuming the agreement is otherwise enforceable.