Can Parties to an Arbitration Agreement be Forced into a Class Action?
From consumer warranties to employment agreements, arbitration provisions are found in numerous everyday contracts. Such clauses generally mean that before going to court, parties must try to resolve disagreements with the help of an arbitrator. Unlike conventional litigation, arbitration can provide a less expense and time-consuming way to pinpoint the heart of a disagreement and develop solutions to resolve it.
Power in numbers
In some instances, parties that share the same issue can band together in class actions, provided certain criteria are met. Similarly, parties may also want to consolidate individual arbitrations into a big proceeding, so that the same issues do not have to be hashed out repeatedly. Unfortunately, many arbitration agreements are silent as to whether class actions and consolidated arbitrations are permitted, which has led to a number of major lawsuits to determine whether parties can be forced into class action or consolidated arbitrations.
Who decides – an arbitrator or a judge?
In such disputes, parties may even argue over whether a court or an arbitrator gets to decide if class arbitration is permitted. Since an arbitrator’s decision on this issue is generally the final word, with courts having very little wiggle room to overturn such decisions, parties should be careful about agreeing to let the arbitrator make this determination. With the exception of major mistakes, arbitrators’ decisions on this issue will generally be permitted to stand.
Against their will?
Regardless of who decides whether class arbitration is permitted in a case, there must be some basis in the contract itself for concluding that class actions are permitted. The fact that parties agreed to arbitrate cannot be the sole reason for concluding that class arbitration is permitted. According to the U.S. Supreme Court, class arbitration changes the nature of the entire dispute, and therefore consenting to standard arbitration cannot be the basis for concluding that a party also agreed to class arbitrations.