A recent California court decision cautioned employers to ensure the arbitration clause of an employee handbook is broad enough to include class claims. Many employee handbooks include a provision stating that any claim, dispute, or controversy between the employer and employee be submitted to arbitration, rather than brought in a court. While such language may be sufficient for any individual claims by the employee, it may not permit the arbitration of class action claims.
In 2010, the U.S. Supreme Court ruled in Stolt-Nielsen S.A. v. Animal Feeds International Corporation that a party cannot be forced to arbitrate class claims unless the party contractually agreed to do so. The Supreme Court did not say what contractual basis would require arbitration of class claims, leaving this determination to arbitrators and courts applying state law.
The recent California court decision— Nelson v. Legacy Partners Residential—reviewed an arbitration clause in an employee handbook to determine whether the clause required a former employee to bring a class claim in arbitration instead of court. The former employee brought a "class claim" in court against her former employer, on behalf of all current and former managers of Legacy Partners. The employer sought to compel arbitration of the class claim.
The arbitration clause in the employee handbook stated that any "claim, dispute, or controversy" between the employee and the employer must be submitted to arbitration. The Legacy Partners Court noted that the provision made no reference to class claims. It also pointed out that, by their very nature, class claims are not claims between an individual employee and an employer. A class claim is brought on behalf of a class of employees. The arbitration clause, therefore, according to the Court did not permit arbitration of a class claim.
Employers should review the arbitration clauses in their employee handbooks to determine whether the clauses will require arbitration of class claims. If the clause is limited to claims between an employee and an employer, class claims may be outside the scope of the provision. Employers may find themselves litigating in a forum not of their own choosing.