Split 5 to 4, Supreme Court Deals a Blow to Class Arbitrations

WASHINGTON — The Supreme Court ruled on Wednesday that workers at a California business could not band together to seek compensation for what they said was their employer’s failure to protect their data.

The vote was 5 to 4, with the court’s conservative members in the majority.

The decision was the latest in a line of rulings allowing companies to use arbitration provisions to bar both class actions in court and class-wide arbitration proceedings. In earlier 5-to-4 decisions concerning fine-print contracts with consumers and employment agreements, the court ruled that arbitration provisions can require disputes to be resolved one by one.

Those rulings can make it difficult for consumers and workers to pursue minor claims even where their collective harm was substantial.

Wednesday’s decision, Lamps Plus v. Varela, No. 17-988, started in 2016, when a hacker posing as a company official persuaded an employee of Lamps Plus, which sells lighting fixtures, to disclose the tax filings of about 1,300 workers. The hacker used the information to file a fraudulent tax return in the name of Frank Varela, a Lamps Plus employee.

Mr. Varela had signed an employment agreement requiring him to resolve disputes with Lamps Plus through arbitration. But he went to court, filing a class-action suit against the company on behalf of himself and other Lamps Plus employees.

Lamps Plus asked the judge to do two things: send the case to arbitration and require Mr. Varela to pursue only his own claim there. The judge agreed that arbitration was the right forum but said class arbitration was permitted by the arbitration clause in the employment agreement.

The arbitration clause said that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment.” That language, a divided three-judge panel of the United States Court of Appeals for the Ninth Circuit ruled, meant that workers could pursue their claims as a class in the arbitration proceeding.

In an unsigned opinion, the majority said that language allowed the workers to band together. “A reasonable — and perhaps the most reasonable — interpretation of this expansive language is that it authorizes class arbitration,” the majority said.

In dissent, Judge Ferdinand F. Fernandez said the majority had engaged in a “palpable evasion” of the Supreme Court’s 2010 decision that said it was unlawful to require class arbitration where the arbitration agreement did not discuss the matter one way or the other.

Writing for the majority on Wednesday, Chief Justice John G. Roberts Jr. said the 2010 decision resolved Mr. Varela’s case. Since Mr. Varela and Lamps Plus had not expressly agreed to class arbitration, Chief Justice Roberts wrote, only individual arbitrations were allowed.

The chief justice wrote that class arbitrations were at odds with the basic goals of arbitration, which he said were speed and simplicity.

All four of the court’s liberal members wrote dissents. Justice Elena Kagan wrote that the majority had created a body of law whose purpose was to frustrate class actions and class-wide arbitrations.

She said the court should have endorsed a common principle of contract interpretation that resolves ambiguities against the party — here, Lamps Plus — that drafted the provision. Using ellipses to indicate a skeptical pause, she wrote that Wednesday’s decision would never have appeared among decisions by the court “save that this case involves … class proceedings.”

Justice Ruth Bader Ginsburg, quoting an earlier dissent, said the decision was the court’s latest effort “to deny employees and consumers ‘effective relief against powerful economic entities.’”

“Propelled by the court’s decisions,” Justice Ginsburg wrote, “mandatory arbitration clauses in employment and consumer contracts have proliferated.”