Hunton Employment & Labor Perspectives

The body of law surrounding class action employment arbitrations received another jolt Monday when the Second Circuit revived an arbitration action with a potential class of roughly 70,000 employees.

In Jock v. Sterling Jewelers, the Second Circuit overturned the district court and upheld an arbitrator’s decision to bind absent class members to the arbitration provisions of the company’s agreement.  The case represents another significant development in the realm of class arbitrations and class waivers, which have been the subject of significant recent litigation.

The Jock case dates back to 2008, when several current and former employees of the retail jewelry store commenced an action alleging unfair pay based on gender in violation of Title VII of the Civil Rights Act of 1964 and the Equal Pay Act.  All of the company’s employees had signed arbitration agreements that waived their rights to bring lawsuits in court, but allowed them to “seek and be awarded equal remedy through the [arbitration] program.”

The arbitration agreement stated “the Arbitrator shall have the power to award any types of legal or equitable relief that would be available in a court of competent jurisdiction,” and that any disputes would be resolved under the rules of the American Arbitration Association.  It did not explicitly authorize or prohibit arbitration on a class-wide basis.

On first review, the arbitrator determined the language of the agreement authorized class arbitration, even if it was not explicit.  The Second Circuit agreed and supported the arbitrator’s decision, finding that an “implied agreement to permit [class] arbitration” was sufficient to support the arbitrator’s determination that the action could proceed on a class-wide basis.

The arbitrator then certified a class of more than 40,000 female plaintiffs, including mostly women who neither submitted claims nor affirmatively “opted-in” to the litigation (the “absent class members”).  The employer appealed, and after bouncing back and forth between the district court and the Second Circuit, the district court decided the arbitrator did not have the power to bind the absent class members because the absent class members did not affirmatively consent to abide by the arbitrator’s decision as to class treatment.

The Second Circuit again disagreed, and upheld the arbitrator’s certification of the full class, which has now grown to nearly 70,000 because of new employees hired during the litigation.  The Court determined the absent class members provided sufficient consent to be bound by the arbitrator’s decision on class action proceedings when they signed the arbitration agreements in the first place.  They did not need to opt-in to the particular legal action to be bound by the arbitrator’s interpretation of the arbitration agreement, the Court held.

The Court did not address whether the arbitrator correctly determined that the arbitration would proceed as a mandatory—rather than opt-out—action, and remanded that issue to the district court.

The Jock case is particularly noteworthy not only because of the massive size of the potential class, but also because of the Second Circuit’s ability to square it with the Supreme Court’s recent decision in Lamps Plus v. Varela, which held “ambiguous” arbitration agreements could not provide the contractual basis for an arbitrator to compel class action arbitration.

The Second Circuit reasoned that Lamps Plus did not change the rule that an implicit agreement to allow class arbitration could suffice; it merely determined an ambiguous agreement was not sufficient.  Because the agreement in Jock allowed the arbitrator to grant “any types of legal or equitable remedies” available in court and incorporated the American Arbitration Association rules, which allow for class arbitration, the Second Circuit determined the Jock agreement was not ambiguous, but instead implied a right to arbitrate on a class-wide basis.

Notably, the Second Circuit applied an “extremely deferential” standard of review to the arbitrator’s decision in Jock and, therefore, did not explicitly determine that the arbitrator was correct that the agreement was unambiguous in its authorization of class arbitration.  Instead, it simply determined the arbitrator’s decision was within her authority under the agreement.