Employers Should Review Arbitration Agreements in Wake of New Supreme Court Ruling

Author: Michael C. Jacobson, XpertHR Legal Editor

June 18, 2013

A unanimous Supreme Court held that arbitrators get the final say as to whether class arbitration is authorized if the parties put the question of class arbitration before the arbitrator. Oxford Health Plans, LLC v. Sutter, +2013 U.S. LEXIS 4358 (2013). This decision may significantly impact all arbitration agreements, including those used by employers to resolve disputes with employees, because it may open the door for more class arbitration.

The Oxford case arose from a common payment dispute among physicians in the Oxford insurance network who sought to collectively arbitrate their dispute. The physicians had an arbitration agreement with Oxford, but it did not specifically reference class arbitration. Oxford agreed with the physicians that the arbitrator should decide the issue of class arbitration, and the arbitrator permitted the doctors to form a class.

Oxford appealed the arbitrator's decision all the way to the Supreme Court to prevent the physicians from forming a class to arbitrate the dispute, claiming that the arbitrator misinterpreted the language in the agreement. The Supreme Court ruled in favor of the physicians, holding that Oxford waived its right to seek judicial review because it chose to arbitrate whether the agreement permitted class arbitration. The Court specified that the arbitrator's decision in that regard was final and binding, even if the arbitrator was mistaken as to the interpretation of the arbitration agreement. Specifically, the Court found that Oxford waived its right to judicial review on the question of class arbitration when it decided to arbitrate that particular issue.

Jeff Zaino, Esq., of the American Arbitration Association (AAA) agreed the decision was significant because it "reaffirms in very strong terms the limited role of courts in reviewing arbitration awards." Employers could use "explicit class action waivers," according to Zaino, but that tactic is not without its limitations as the legality of class action waivers in arbitration agreements remains unclear.

In D.R. Horton Inc., +357 NLRB No. 184, the National Labor Relations Board (NLRB) held that employers may not include class arbitration waivers as a condition of employment because it would violate the National Labor Relations Act (NLRA). D.R. Horton remains on appeal before the Fifth Circuit and, according to Zaino, the Supreme Court could resolve the issue of class action waivers itself with its anticipated decision in American Express v. Italian Colors Restaurant, +2012 U.S. LEXIS 8697 (2012), expected by the end of June.

While this tug of war plays out, employers should tailor their arbitration agreements to be as specific as possible. Given that employers always run the risk of an arbitrator's erroneous interpretation of an arbitration agreement, more specificity will provide the arbitrator with better guidance and clarity. This is important as even flawed interpretations of arbitration agreements are potentially final since the process of arbitration does not include regular judicial review.

Additional Resources

Investigations and Litigation > Arbitration

Participate in Arbitration/Mediation to Resolve a Pending Legal Dispute

Prepare for a Grievance Arbitration With a Union