By Wayne D. Garris Jr., J.D.
Class arbitration is a gateway issue to be decided by courts, and an arbitrator cannot decide on class arbitration unless the controlling arbitration agreement clearly states otherwise.
Agreeing with its sister circuits, the Fifth Circuit held in a matter of first impression that class arbitration is a gateway issue that must be decided by the courts, not by an arbitrator, unless the arbitration agreement contains “clear and unmistakable” language to the contrary. Finding no such language here, the court reversed and remanded one lower court decision, and vacated and remanded another, in a ruling on consolidated appeals (20/20 Communications, Inc. v. Crawford, July 22, 2019, Ho, J.).
Arbitration agreement dispute. 20/20 Communications, a national direct-sales and marketing company, requires its field sales managers to sign an arbitration agreement that includes a class arbitration prohibition. Several field service managers filed individual arbitration claims against 20/20 and later amended them to assert identical class claims. 20/20 sought a declaration in federal district court that the court must decide on class arbitration and that its arbitration agreement bars the employees from proceeding as a class. That court dismissed the complaint, holding that the arbitration agreement authorized the arbitrator to determine class arbitrability.
Separately, some of the employees asked their individual arbitrators to issue clause construction awards holding that the class arbitration bar is unenforceable under the NLRA. After one of the arbitrators concluded that the class arbitration bar is prohibited by the NLRA, 20/20 moved to vacate the arbitrator’s clause construction award. A federal district court rejected 20/20’s request.
After 20/20 appealed both federal district court rulings, the Fifth Circuit consolidated the appeals.
Class arbitration is a gateway issue. The court began by discussing gateway issues in arbitration, such as contract formation, and how these matters are typically decided by courts absent “clear and unmistakable language” vesting this authority in an arbitrator. The court noted that the Fourth, Sixth, Seventh, Eighth, Ninth, and Eleventh Circuits had previously concluded that class arbitrability is a gateway issue for courts, not arbitrators. Agreeing with the other circuits, the Fifth Circuit concluded that class arbitration substantially changes the nature of an arbitration, and thus it is an issue of arbitrability. Specifically, class arbitration jeopardizes some of the perceived benefits of arbitration—cost, efficiency, and privacy, because of the due process requirements to notify unnamed class members and allow them an opportunity to be heard.
20/20’s arbitration agreement. The court then addressed whether the arbitration agreement at issue in this case “clearly and unmistakably” allowed the arbitrator to decide whether the employees could proceed as a class. In addition to the class arbitration bar, the agreements stated “[t]his means that an arbitrator will hear only individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group of employees in one proceeding.” The court found that this statement clearly prohibited arbitrators from determining the availability of class arbitration.
General authority not enough. The employees argued that several provisions in the agreement that grant general powers to the arbitrator vest the arbitrator with the power to decide on class arbitration. Specifically, the parties agreed that the arbitrator would resolve disputes over the meaning of the agreement; that the American Arbitration Association rules, which state that the arbitrator resolves issues of arbitrability, would govern the agreement; and that all disputes between the parties would be resolved by final and binding arbitration.
The court rejected this argument. First, the court found that none of these general clauses contained “clear and unmistakable” language granting the arbitrator authority to determine class arbitration. Second, the court cited to an established principle of contract interpretation that specific provisions control general provisions. Relying on this principle, the court noted that the arbitration agreement contained specific language barring an arbitrator from arbitrating disputes as a class or collective action. The provisions cited by the employees do not contain specific language to the contrary. The court remanded both lower court decision for proceedings
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