May 02, 2017

Most consumer and employment contracts now have arbitration clauses that require any dispute to be resolved in binding arbitration. But, as seen in the high-profile Sterling Jewelers case, not all such clauses explicitly ban arbitration on a classwide basis—at least not yet. 

Until they do, there are a number of significant points every practitioner should know about how class arbitration compares to class actions litigated in court. 

Initial Step Required 

Class arbitration proceedings begin with a step not necessary in class litigation—the clause construction phase. The arbitrator must first determine whether the case can be arbitrated as a class based on the language of the contract’s arbitration provision. 

“That process of clause construction and interpretation can add time to these cases in a way that you wouldn’t have if you went to court,” Joseph M. Sellers, a partner at plaintiffs’ firm Cohen Milstein Sellers & Toll in Washington, told Bloomberg BNA. 

And he ought to know—Sellers represents a class of 69,000 female jewelry store employees in the long-running class arbitration against Sterling Jewelers Inc. involving sexual harassment and gender discrimination allegations. The arbitrator’s ruling that Sterling’s contract allowed for class arbitration set off a series of appeals that alone lasted two and a half years, Sellers said. 

Limited Judicial Review 

One major difference between class arbitrations and class actions in court is that judicial review of arbitrator decisions is extremely limited. 

The U.S. Supreme Court said in Oxford Health Plans LLC v. Sutter that “an arbitrator can even interpret the law wrong as long as the arbitrator seems to have applied the right body of law,” plaintiffs’ attorney Sellers said. 

Fast, Flexible 

If the parties don’t litigate too much over the arbitrator’s clause construction, “class arbitrations take no longer than class actions in court and would likely take less time,” Strong said. 

“Arbitrators do not have to balance large dockets like judges do and can set the hearing date as early as possible,” she said. 

That has been Sellers’s experience with the Sterling case. The arbitration has dragged on for years, but he said the arbitrator is very accessible. 

“We had a hearing recently on a matter that one party thought was urgent and the arbitrator scheduled it within three hours—and that’s not the first time that’s happened,” he said. 

“Most courts are not as responsive,” he said. “Arbitrators can be—and ours has been—very responsive to immediate needs of the parties.” 

Not Confidential But …

Parties in an individual arbitration usually agree to keep the proceedings confidential. But when absent class members are involved, confidentially takes a back seat to transparency. 

The AAA rules say the presumption of privacy and confidentiality in arbitration proceedings doesn’t apply in class arbitrations. 

“All class arbitration hearings and filings may be made public, subject to the authority of the arbitrator to provide otherwise in special circumstances,” Rule 9 says. “However, in no event shall class members, or their individual counsel, if any, be excluded from the arbitration hearings.” 

But as Sellers, the plaintiffs’ attorney, points out, “it’s a presumption so it’s not a guarantee.” 

“There still can be a battle over which things may be made public,” he said. Sellers recently won the release of sworn statements from Sterling employees after years of arguing that they be made public. 

“The rights of our 69,000 clients are being adjudicated here and our argument was they for the most part had no idea what evidence was being submitted on their behalf,” he said. 

Going the Way of the Dodo? 

These are all important aspects of class arbitration. But some say this knowledge may become less relevant in the future. 

“There are those who would say that the situation we have in the Sterling case is somewhat of an anomaly and it was from an era when it wasn’t clear how clearly parties had to state their intention to not commit class claims to arbitration,” Sellers, the plaintiffs’ attorney, said. 

He said using arbitration agreements is fueled by the hope they will preclude class claims altogether. “If arbitration agreements could not foreclose the use of class claims, I think the use of arbitration agreements would drop off dramatically.” 

This article originally appeared in Bloomberg BNA.