Leading Arbitration
Service Provider Will Not Enforce
Clauses Banning Arbitration of Class Actions
A
leading arbitration service provider, JAMS (Judicial Arbitration and
Mediation Services), recently announced its position that it will no longer
enforce clauses in arbitration agreements that ban consumer and employment
class action arbitrations. This policy statement by JAMS continues a trend
of limiting overbroad agreements by employers.
Arbitration Agreements Popular in California
Many
employers in California
choose to have their employees sign arbitration agreements. Companies argue
that mandatory arbitration keeps their costs down by keeping cases out of
court and allowing more efficient and less time consuming resolution.
Recent
court decisions have enabled employers to draft arbitration agreements that
will withstand scrutiny by the courts and generally be upheld. California courts
will generally enforce arbitration agreements that meet certain
restrictions and are not procedurally or substantively unconscionable.
Many
employers have inserted clauses into their arbitration agreements
forbidding arbitration of class actions. In doing so, employers hoped to
avoid the logistical and legal difficulties of class action suits.
JAMS Issues Policy Statement
JAMS has taken the position that it is
inappropriate for a company to restrict the right of a consumer to be a
member of class-action arbitration or to initiate a class action
arbitration. In its new policy statement, JAMS said that the restriction
found in many arbitration agreements on class actions is "an unfair
restriction on the rights of the individual consumer."
The
policy applies only to "consumer" mandatory arbitration clauses.
The term "consumer" includes anyone who "is an employee
required to agree to a mandatory pre-employment arbitration clause as a
condition of employment."
JAMS
said that it hopes companies that impose arbitration will remove class
action preclusion clauses from their arbitration agreements.
Founded
in 1979, JAMS is the largest private provider of arbitration services with
23 offices nationwide and more than 200 arbitrators.
Other
large arbitration serviced providers may follow JAMS. The American
Arbitration Association is reviewing its policies. However, it has not
currently taken a position on whether class action preclusion clauses are
appropriate.
JAMS Procedure for Handling Arbitration with Class Action Preclusion
Clauses
JAMS
policy states that it will take the following steps to handle an
arbitration agreement that contains a class action preclusion clause:
- If the arbitration
is an individual arbitration filed by a consumer against the company
imposing the clause, then JAMS will take the individual case if the
counsel for plaintiff waives the inclusion of the clause. If there is
no waiver, JAMS will decline the case.
- If the arbitration
is an individual case referred to JAMS from a court after the
plaintiff has first filed a lawsuit and the defendant has requested
removal to arbitration, JAMS will take the individual case if counsel
for plaintiff waives the inclusion of the clause or the court has
stricken the clause. If there is no waiver and the court has not
stricken the clause, JAMS will decline the case.
- If a class action
arbitration is filed at JAMS and there is a class action preclusion
clause, JAMS will accept the case and not impose the clause.
What Role Will the Courts Play
Questions
arise as to whether JAMS can enforce this stance. As JAMS rightly points
out in its policy statement, it is the arbitrator, and not JAMS itself,
that will make the decision regarding the issue of class action preclusion
in the arbitration agreement. JAMS is simply
stating that it will take the claim as a class action claim and proceed
with the appointment of an arbitrator.
At
that point, one of the parties may go to court to either seek to have the
class action preclusion clause enforced or to declare it unenforceable. If
the court declares the class action preclusion clause to be valid and
orders it back to JAMS as an individual case then JAMS will proceed on that
basis and appoint an arbitrator.
Courts
have not entirely resolved whether such class action preclusion clauses are
enforceable. However, the Supreme Court has stated that it is up to the
individual arbitrator to decide whether the contract language provides for
class action preclusion. Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003). The court also
seemingly allowed for class action preclusion bans. The case involved an
arbitration agreement that did not specify whether class action relief was
available. The divided court sent the case back to the arbitrator to decide
the parties' intentions as to class actions in their arbitration
agreements.
The
result of Green Tree has been more litigation over the class action
preclusion issue. There is also a case currently pending before the
California Supreme Court regarding class action preclusion clauses- - Discover
Bank v. Superior Court of Los Angeles County, Docket No. S113725.
As
Edward Anderson, the Managing Director of the National Arbitration Forum,
stated, "I doubt that an administrator can unilaterally rewrite the
contracts of the parties, unless it is clearly required by law."
Review of Existing Arbitration Agreements Necessary
This
policy statement by JAMS underscores the need to carefully review
arbitration agreements already in use. Counsel should determine the
employers' desires regarding class action preclusion and whether the
employers' agreements should expressly preclude class action arbitration.
An outdated or poorly drafted arbitration agreement may lead to unnecessary
litigation and may result in the employer being dragged into class action
arbitration when that is clearly not its desire.
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