Meatloaf’s “You Took the Words Right Out of My Mouth” opens with a dialogue by Jim Steinman, who wrote the song, and actress Marcia McClain, who played Dee Stewart in the soap opera As the World Turns. He asks, “On a hot summer night, would you offer your throat to the wolf with the red roses?”
For a quick trip back to 1978-79, listen to the album version, not the shortened single, which cut out the dialogue, presumably because it distracted the roller skaters. The song is about teenage lovers and passion, and the lyrics are rich with intense imagery.
Offering a new twist on this old classic, the Supreme Court last week issued a ruling on arbitration agreements that can be paraphrased as “You took the words right out of the air because they weren’t in my arbitration agreement.” This decision will inflame passions in the pro-worker camp, but it’s a good decision for businesses. The case is called Lamps Plus v. Varela.
The Court ruled: When an arbitration agreement is ambiguous about whether the arbitration can take the form of a class action, the contract must be interpreted to prohibit class arbitration. That is, the individual must arbitrate claims on an individual basis.
The 5-4 majority reasoned that one of the primary benefits of an arbitration agreement is that it avoids complex, lengthy proceedings like what occurs in a class action. If the Court were to read into an arbitration agreement that class actions are permitted, that would deprive the parties of one of the primary benefits of arbitration (says the majority).
The dissenters argued passionately that the Court should apply the often-used principle of contract interpretation called “contra proferentem,” which is Latin so no one knows what it really means. Ambiguities in contracts are normally interpreted against the party that wrote the agreement. If that principle had been applied in this case, then the ambiguity — whether the contract permitted arbitration on a class basis — would have been interpreted in favor of the individual, not the company that drafted the contract or its lawyer who sweated bullets for three years while the meaning of the document was picked apart by a federal district court, the Ninth Circuit Court of Appeals, and finally the U.S. Supreme Court.
In any event, the majority rejected that principle for arbitration agreements. The Court held that a core principle of the Federal Arbitration Act (FAA) is that arbitration is a matter of consent. Therefore an arbitration agreement subject to the FAA cannot be read to permit a form of arbitration that the parties did not specifically agree upon in their contract. Most arbitration agreements will be subject to the FAA.
This particular case involved an arbitration agreement between an employee and an employer. The employee wanted to bring a class action claim after a data breach led to the disclosure of personal information about 1,300 employees, which eventually resulted in a fraudulent tax return being filed in the name of the lead plaintiff.
Although this case involved employee-employer arbitration agreements, the ruling applies equally to arbitration agreements with independent contractors. The main exception would be agreements in the interstate transportation industry, which are not covered by the FAA.
Arbitration agreements can be a powerful tool in preventing class actions, and the 5-4 conservative majority is providing a little wiggle room for companies whose arbitration agreements are not as tightly drafted as they should be.
To ensure paradise by the dashboard lights, companies should make sure that their arbitration agreements (1) require disputes to be settled through arbitration rather than in the courts, (2) include a limited carve out for some proceedings to be handled outside of arbitration, such as injunctions, workers comp claims, and agency proceedings, and (3) include a clear waiver of the right to bring or participate in class or collective actions.
In this particular case, the Court ruled that two out of three ain’t bad.
Baby, we can talk all night (about this case) but that ain’t getting us nowhere. So I’ll the end the post here with this bit of advice. The safest approach is to write the class and collective action waiver more clearly. Avoid ambiguity whenever possible.
© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.