Arbitration: New Court, New Rules?

The U.S. Supreme Court recently indicated that it will be taking an even more pro-business stance regarding arbitration. The Court heard arguments in two cases involving company agreements to determine whether these disputes must be handled through an arbitrator rather than a judge.

The first case, Henry Schein, Inc. v. Archer & White Sales, Inc., focuses on a Texas dental equipment distributor and seeks to clarify whether a particular dispute should be decided in arbitration, rather than at court. Currently, if both parties agreed to give the arbitrator discretion, the arbitrator decides whether the particular dispute is sufficiently related to the contract in dispute to warrant arbitration proceedings. However, citing the U.S. Court of Appeals for the Fifth Circuit, a “court will not send a case to an arbitrator to decide the question ofarbitrability” even if both parties have agreed so long as the court finds the claims “wholly groundless.” Yet, in this case, the plaintiff agreed to arbitrate claims for damages but not in the actions seeking injunctive relief. Ultimately, this is controversial since such an exception is neither covered by the Federal Arbitration Act (FAA) or the Court’s existing cases.

The second case, Lamps Plus Inc. v. Varela, regards an employee, Frank Varela, suing Lamps Plus for negligence, breach of contract, and invasion of privacy. Arising from a phishing scam on the company in 2016, Varela’s personal information was accessed, and he is now seeking a class action complaint on behalf of current and former employees. The issue here is whether the FAA precludes state-law interpretations of arbitration to allow aggregated arbitrations, such as a class action when the agreement is silent on the issue. As a result, the largest issue that has divided the Court is whether the contract’s language arguably allows aggregated arbitration.

Outside these two cases, a larger debate is ongoing. Companies prefer to arbitrate claims because it is cost effective, efficient, and carries less risk than arguing in court, which may establish an unfavorable precedent. Nevertheless, critics argue that arbitration forces individuals to fight alone and prevents them from raising public support for issues such as sexual assault, which was recently highlighted by the #MeToo movement.