On July 30, the Third Circuit held that whether an arbitration agreement permits classwide arbitration is a question for courts, not arbitrators, to decide. Through its decision, the Third Circuit expressly aligned itself with a prior ruling to the same effect from the Sixth Circuit.
The Third Circuit reversed a 2011 decision of a district court directing an arbitrator to rule on whether classwide arbitration was available. The court’s opinion held: “Because of the fundamental differences between classwide and individual arbitration, and the consequences of proceeding with one rather than the other, we hold that the availability of classwide arbitration is a substantive ‘question of arbitrability’ to be decided by a court absent clear agreement otherwise.” The court did not answer the substantive question of whether the underlying employment agreements – which didn’t explicitly allow or forbid class arbitration – permitted classwide arbitration, instead sending that question back to the trial court to decide.
The Third Circuit also noted that the only other federal appeals court that has “squarely resolved the ‘who decides’ issue” is the Sixth Circuit, which held that whether an arbitration agreement allows classwide arbitration proceedings was a “gateway matter” that was appropriate for judicial determination.
Employers can largely avoid dispute over whether their arbitration agreements permit class arbitration by including an explicit class arbitration waiver. Many entities in the past, however, did not include such clauses due to potential challenges of unconscionability. The Third Circuit’s opinion provides some degree of comfort to parties desiring to enforce arbitration provisions preventing classwide arbitration and to obtain appellate review of any decision holding that such arbitration waivers cannot be enforced.
Troutman Sanders LLP has extensive experience in counseling clients on arbitration provisions, as well as assisting in their drafting to avoid class action risk. We will continue to monitor any further developments in this and similar cases.