Arbitrator Could Bind Absent Class Members, Second Circuit Holds

Employment Law
 

An arbitrator could bind absent class members to a Title VII and Equal Pay Act (EPA) class action where the plaintiffs all signed arbitration agreements that consented to the arbitrator’s authority, the U.S. Court of Appeals has ruled.

In the long-running litigation, current and former retail sales employees of Sterling Jewelers alleged that they were paid less than their male counterparts because of their gender, in violation of Title VII and the EPA.

As a condition of employment, all Sterling employees were required to sign a “Resolve Program” agreement that mandated arbitration and waived court actions. The agreement also provided that the arbitrator had the power to award “any types of legal or equitable relief” and that any claims would be arbitrated in accordance with the American Arbitration Association’s (AAA) rules.

After the plaintiffs filed suit, the employer moved to compel arbitration. An arbitrator issued an award in favor of the plaintiffs, construing the Resolve Agreement to permit classwide arbitration. A district court vacated the award, but the Second Circuit reversed.

Following that decision, the arbitrator issued a class certification determination that certified a class of approximately 44,000 women, comprising the 254 plaintiffs as well as other individuals who had neither submitted claims nor opted in to the arbitration proceeding. The arbitrator certified the class only with respect to the Title VII claims.

The district court denied Sterling’s motion to vacate the class determination award, but the Second Circuit again reversed, holding that the lower court failed to consider whether the arbitrator had the power to bind absent class members. On remand, the district court vacated the arbitrator’s class determination ruling.

Yet again, the Second Circuit reversed.

Sterling contended that the absent class members did not affirmatively opt in to the arbitration proceeding and provide their consent to the arbitrator’s authority to decide whether the Resolve Agreement permits class procedures.

The plaintiffs countered that by signing the Resolve Agreement, the absent class members had in fact authorized the arbitrator to make such a determination. The court agreed.

“Although the absent class members have not affirmatively opted in to this arbitration proceeding, by signing the Resolve Agreement, they consented to the arbitrator’s authority to decide the threshold question of whether the agreement permits class arbitration,” the court wrote.

The agreement provides for the application of the AAA rules, which state that “the arbitrator shall determine as a threshold matter … whether the applicable arbitration clause permits the arbitration to proceed on behalf of … a class.”

Incorporating the AAA rules into the Resolve Agreement demonstrates agreement to have the arbitrator decide the question of class arbitrability, the court said.

“Further supporting the conclusion that absent class members authorized the arbitrator to decide whether the arbitration may proceed on a class basis, the Resolve Agreement provides that ‘[q]uestions of arbitrability’ and ‘procedural questions’ ‘shall be decided by the arbitrator,’” the court noted.

This reading is also consistent with Ohio law, the court said.

“Because the absent class members, no less than the parties, thus ‘bargained for the arbitrator’s construction of their agreement’ with respect to class arbitrability, the arbitrator acted within her authority in purporting to bind the absent class members to class procedures,” the court wrote. “By virtue of the absent class members’ contractually expressed consent, they, like the parties, may be bound by the arbitrator’s determination that the Resolve Agreement permits class procedures regardless of whether that determination is, as the District Court believes, ‘wrong as a matter of law.’”

The court’s review was limited to whether the arbitrator had the authority to reach the issue of class arbitrability—not if the decision was correct on the merits of issues such as commonality and typicality.

“That those absent class members did not expressly submit themselves to this particular arbitrator’s authority does not alter our analysis,” the panel added. “Class actions that bind absent class members as part of mandatory or opt-out classes are routinely adjudicated by arbitrators and in our courts.”

Reversing the district court’s order to vacate the class determination ruling, the court remanded the case for a determination of whether the arbitrator exceeded her authority in certifying an opt-out (as opposed to mandatory) class for injunctive and declaratory relief.

To read the opinion in Jock v. Sterling Jewelers, Inc., click here.

Why it matters: The Second Circuit was clear that courts are limited in their powers to vacate arbitration awards and must apply “an extremely deferential standard of review.” Applying such a standard, the panel explained that the arbitration agreement signed by all of the Sterling employees provided the arbitrator with the authority to decide the issue of class arbitrability. Therefore, the court could only consider whether the arbitrator exceeded her authority and could not reach the merits of her decision.

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