In a decision issued on November 18, 2019, the federal Second Circuit Court of Appeals (based in New York) confirmed that under the right circumstances, arbitrators can find that parties to an arbitration agreement implicitly agreed to permit arbitration claimants to proceed in a class action.  Jock v. Sterling Jewelers, slip. op. (Docket No. 18-153-cv, 2d Cir. 11/18/19).  The court also held that because all of the potentially 44,000 class members had agreed to permit an arbitrator to decide whether or not their identical arbitration agreements permitted class actions, they could be bound by the arbitrator’s decision to permit a class action for a claim pursued initially by only about 250 claimants.

In 2008 Laryssa Jock and other female retail sales employees of Sterling Jewelers sought to bring a class action in court on behalf of themselves and 44,000 other female employees. They alleged that Sterling had discriminated against them because they were paid less than comparable male employees, in violation of Title VII of the Civil Rights Act of 1964.  Because they, like the rest of the potential class members, had signed the same “RESOLVE” agreement to arbitrate all employment disputes, they had to pursue their claims before an arbitrator. Therefore, an  arbitrator had to hear their claims, and, under the terms of the agreement, determine if the agreement permitted them to use a class action procedure.

The RESOLVE agreement conditioned employment on the employees agreeing to “waiv[e] [their] right to obtain any legal or equitable relief . . . through any government agency or court, and . . . also waiv[e] [their] right to commence any court action. [They] may, however, seek and be awarded equal remedy through the RESOLVE Program.”  In addition, the employees agreed that “[t]he Arbitrator shall have the power to award any types of legal or equitable relief that would be available in a court of competent jurisdiction[,]” and that any arbitration proceeding would be conducted “in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association [AAA].”  Under the AAA’s Supplementary Rules for Class Arbitration, “the arbitrator shall determine as a threshold matter . . . whether the applicable arbitration clause permits the arbitration to proceed on behalf of . . . a class.” (Supplementary Rule 3 (2010)).

The Second Circuit held that by incorporating the AAA rules into the agreement, the RESOLVE agreement clearly and unmistakably permitted the arbitrator to decide the question of whether the agreement permitted parties to use a class action process.  Since all the potential class members had agreed to the same clear and unmistakable language, they were all bound by the arbitrator’s decision that the agreement permitted class actions.

In addition, the court reiterated its earlier holding that even though the agreement did not explicitly permit class arbitrations, the arbitrator drew the plausible conclusion that the agreement implicitly permitted class actions.  The Supreme Court’s 2019 Lamp Plus v. Varela decision, 139 S.Ct. 1407 (2019) did not rule out implicit agreements to permit class action arbitrations, the court found.  Rather, according to the court, the issues the Sterling RESOLVE agreement raised were more closely analogous to the situation described in the Supreme Court’s decision in Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013).  Although the Second Circuit did not explain this rationale in detail, the court appeared to be alluding to the Supreme Court’s refusal in the Oxford Health Plans case to vacate an arbitrator’s interpretation of a contract to arbitrate to permit class actions even though the contract language was not explicit about it.  The arbitrator in Oxford Health Plans had found that the arbitration agreement at issue implicitly permitted class actions because, like the RESOLVE agreement in this case, it had broad language that permitted a seemingly wide array of court actions to be pursued in arbitration.

In the Sterling decision, the Second Circuit threaded the needle between Lamps Plus and Oxford Health Plans.  In Lamps Plus, the court had held that “an ambiguous agreement can[not] provide the necessary ‘contractual basis’ for compelling class arbitration.”  139 S. Ct. at 1415.  However, the ambiguous agreement in Lamps Plus was different from the implicit agreements in Sterling and Oxford Health Plans, the Second Circuit said. “Lamps Plus leaves undisturbed the proposition, affirmed in Stolt-Nielsen [v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010)], that an arbitration agreement may be interpreted to include implicit consent to class procedures.”  Sterling, slip op. at 19.