Supreme Court Expands Access to Arbitration

 

Allen Smith, J.D. By Allen Smith, J.D. January 8, 2019
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​Arbitrators, not courts, should decide whether arbitration agreements apply—even when the language of the agreements suggests that there should be no arbitration—if the agreements give arbitrators the power to make that threshold decision, the Supreme Court decided Jan. 8. The ruling, the first Justice Brett Kavanaugh has written for the high court, was unanimous.

The decision is "just another example of the Supreme Court reading the Federal Arbitration Act (FAA) very broadly" in favor of employers when it comes to enforcing arbitration agreements, said Joshua Nadreau, an attorney with Fisher Phillips in Boston. The court "removed one hurdle a party seeking to enforce an arbitration agreement may have had," he noted.

Last year the court ruled that class-action waivers in arbitration agreements don't run afoul of federal labor law.

Commercial Arbitration Case

The court's decision in Henry Schein Inc. v. Archer & White Sales Inc., No. 17-1272, involved a commercial arbitration case, but its interpretation of the FAA is equally applicable in the employment context, Nadreau said.

Archer & White is a small business that distributes dental equipment. It entered into a contract with Pelton & Crane, a dental equipment manufacturer, to distribute Pelton & Crane's equipment. The agreement included an arbitration clause. The relationship eventually soured. Archer & White sued Pelton & Crane's successor and Henry Schein (collectively Schein) for violations of federal and state antitrust law in federal district court.

Schein sought to refer Archer & White's antitrust dispute to arbitration. Archer & White objected, arguing that the case was not subject to arbitration because the antitrust complaint sought injunctive relief and the arbitration agreement barred arbitration of disputes when the plaintiff sought such relief.

The question in the case became: Who decides whether the antitrust dispute is subject to arbitration—an arbitrator or the courts? A district court agreed with Archer & White that when the defendant's argument for arbitration is wholly groundless, the court may determine that the case isn't subject to arbitration. It ruled that Schein's argument for arbitration was wholly groundless. The 5th U.S. Circuit Court of Appeals affirmed.

'Wholly Groundless' Exception Rejected

In a unanimous decision, the Supreme Court reversed. It ruled that the "wholly groundless" exception was inconsistent with the FAA. "We must interpret the act as written, and the act in turn requires that we interpret the contract as written," the court stated. "The act contains no 'wholly groundless' exception, and we may not engraft our own exceptions onto the statutory text."

Arbitrators can efficiently dispose of frivolous cases by quickly ruling that a claim is not arbitrable, the high court noted. Arbitrators may be able to respond to frivolous arguments for arbitration by imposing sanctions, it added.

The Supreme Court sent the case back to the lower courts for determination of whether the contract in the case delegated the arbitrability question to the arbitrator.

Employees Who Are Customers

A well-written employment arbitration agreement typically will not exempt any claim from arbitration, Nadreau said. But sometimes an employee also will be a customer, he noted. There may be a problem in the relationship between the employee as a customer and the employer as a provider of services, such as if a bank employee has an account at the bank. The plaintiff suing the employer in such circumstances might argue that the employment arbitration agreement is inapplicable, Nadreau noted. Regardless of who is right, as a result of the Supreme Court's ruling it's now up to the arbitrator to decide whether the claim may be arbitrated.

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"Parties that sign arbitration agreements often specify the sort of disputes that should be decided by an arbitrator and the sort of disputes that may be brought in court. For example, some contracts stipulate that certain types of employment claims are to be decided in arbitration, even if other types of claims are to be decided in court," said Jack Sullivan, an attorney with Dorsey & Whitney in Minneapolis.

"But parties may disagree over whether a particular dispute falls within the category of claims that must be arbitrated or whether it is a claim that should remain in court. Before today's decision, in many parts of the country, it wasn't always clear whether that threshold question—is this a claim for arbitration, or is it for court?—should itself be decided by a court or by an arbitrator. Today's ruling provides a nationwide rule for litigants: If the contract gives an arbitrator the authority to decide the threshold question of where the dispute should be heard, then the contract should be followed."

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