Analysis Law and Policy

The Supreme Court Has Yet Another Chance to Gut Protections for Employees

Lisa Needham

With Lamps Plus Inc. v. Varela, it looks like the conservative majority on the Court will further narrow the rights of employees to pursue claims against employers.

Earlier this week, the U.S. Supreme Court heard oral arguments in a case, Lamps Plus Inc. v. Varela, that gives the conservative majority on the Court yet another opportunity to narrow protections for employees.

At the end of the last term, the Court decided Epic Systems Corporation v. Lewis. In that case, Justice Neil Gorsuch, writing for the conservative majority, held that individual employment arbitration agreements override the right of employees to bring class action suits against the employer. That decision essentially forces employees to bring their claims one-by-one via arbitration, a decision-making process that largely favors employers.

In an arbitration, the employee and the employer appear before a private arbitrator rather than a judge or jury. Often, the costs of the arbitrator and the hearing must be split by both parties, rather than being limited to the cost of court filings. Discovery is generally quite limited in scope, which means an employee may never get the full story about how the company has wronged them. Even worse, arbitration decisions are often confidential. A company’s misdeeds may never see the light of day, and other employees would have no idea that the issue they’re dealing with is actually a widespread issue at the company.

Thanks to the Epic decision, even when corporations have engaged in widespread discrimination against certain classes of employees or systematically violated laws such as the Fair Labor Standards Act, employees can no longer band together to spread out the cost of litigation. In other words, when employers engage in systematic and widespread violations of the law, such as routinely discriminating against pregnant workers or paying women less than men, it is expensive and difficult for each of those people to arbitrate their claims individually—so much so that many may choose not to pursue it.

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Now, with Lamps Plus, it looks like that same conservative majority will expand the reach of individual arbitration yet again, further narrowing the rights of employees to pursue claims against employers.

Frank Varela, the plaintiff in this case, is a Lamps Plus employee. Another employee of the company was subject to a “phishing” attack, resulting in the exposure of the personal information of a number of employees, including Varela. The hackers stole Varela’s identity and filed a tax return in his name. Because the breach affected multiple employees, Varela filed a class action lawsuit in federal district court in California arguing that Lamps Plus, as his employer, had been negligent and created the conditions for the breach of Varela’s privacy. But Varela had been required to sign an arbitration agreement as a condition of his employment with the company, so Lamps Plus asked the court to compel Varela to arbitrate instead.

The district court agreed with Lamps Plus that arbitration was required, but also found that the arbitration agreement did not explicitly prohibit class-wide arbitration, and the Ninth Circuit Court of Appeals agreed. Class-wide arbitration is similar to a class action, although it still occurs in front of an arbitrator rather than in a court. Plaintiffs in a class-wide arbitration can combine their claims, making it cheaper and more efficient to pursue relief. Indeed, it appears that many people choose to never pursue one-on-one arbitration claims because it is too expensive. If Varela could aggregate his data breach claim with other Lamps Plus employees, it may have made it more worthwhile for him to pursue the case.

Neither Varela nor Lamps Plus disputed that the arbitration agreement itself was silent on whether class-wide arbitration was permitted. In other words, the arbitration agreement didn’t mention class-wide arbitration at all. Because of that, the district court and, subsequently, the Ninth Circuit, needed to interpret whether the arbitration agreement could be read to include class-wide arbitration.

Disputes over how to interpret contract language—arbitration agreements are, at root, a contract between employer and employee—are typically decided under state law. That’s because there really isn’t much in the way of federal contract law, and there’s nothing about contract law in the Constitution. Each state generally gets to decide how it would like contracts to be interpreted. Because of that, the lower courts here used California law to interpret the arbitration agreement.

California law says that contracts are ambiguous when you can read the contract provision in two or more ways. Here, the silence of the arbitration agreement could be read to include class-wide arbitration or exclude it. Further, any ambiguity in the contract cuts against the party that drafted the contract—in this case, Lamps Plus. That is particularly true when the contract is one of “adhesion”: a contract where one side with greater power drafts the contract and the other side has no real opportunity to participate in the drafting or alter the terms. Varela’s mandatory arbitration agreement was such a contract.

At the Supreme Court, the attorney for Lamps Plus asked the Court to turn this long-held principle of contract law on its head and instead create a federal rule that would functionally bar class-wide arbitration unless the arbitration agreement specifically stated it was allowed. While Justice Elena Kagan rightly expressed significant skepticism about such an idea, the conservative justices seemed inclined to accept it.  That stance requires them to ignore the rights of states, something they dislike doing in other contexts, such as when they uphold significant state-level abortion restrictions.

Chief Justice John Roberts was perhaps the most overt at signaling his dislike of an interpretation of the agreement that would favor employees. He called class-wide arbitration a “poison pill” and said that the notion of it is “fundamentally inconsistent” with arbitration itself. (He’s not entirely wrong. Employers like arbitration agreements precisely because they stop employees from banding together. If class-wide arbitration agreements are allowed, it returns a measure of power to employees.)

In some ways, much of this case is meaningless because, going forward, employers could simply begin including explicit provisions that prohibit class-wide arbitration in their arbitration agreements. That’s a bit beside the point, however. What Lamps Plus is asking the Court to do here—and what the Court seems prepared to grant—is to ignore state law and interpret the arbitration agreement in the manner most favorable to the company instead, even though the company had all the power when it drafted the agreement.

If that happens, it will be yet another example of the Supreme Court putting the interests of employers well ahead of the interests of employees, even when it means stepping over state law to do so. The conservative majority of the Court has been very successful in doing just that. Last term, besides the ruling in Epic that stripped employees of the ability to pursue class actions when individual arbitration agreements exist, they also gutted public-sector unions. If Lamps Plus prevails here, employees wouldn’t be able to join forces in arbitration even if the arbitration agreement doesn’t specifically bar them from doing so.

At the end of the day, when employees can’t band together, their power is greatly diminished. Thanks to conservatives on the Supreme Court, there are fewer and fewer ways for them to unite—and, with this case, it looks like that will only continue to worsen.

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Supreme Court, workers rights

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