Classwide Arbitration is a Gateway Issue That Must Be Decided by Courts Not Arbitrators

In Opalinski v. Robert Half International Inc., the Third Circuit recently tackled the question of whether a district court— rather than an arbitrator—should decide if an agreement to arbitrate between two parties also authorizes the arbitration of unidentified individuals’ claims on a classwide basis. Concluding that the district court should decide this question, the Third Circuit joined the Sixth Circuit as the only Courts of Appeals to squarely confront the “who decides” inquiry.

In Opalinski, Plaintiffs David Opalinski and James McCabe brought suit against their former employer on behalf of themselves “and other individuals” alleging that Robert Half International Inc. (“RHI”) violated the Fair Labor Standards Act. RHI moved to compel arbitration of Plaintiffs’ claims on an individual basis as both Plaintiffs’ employment agreements contained an arbitration clause, requiring any dispute arising out of or relating to the their employment to be submitted to arbitration. Notably, neither agreement mentioned classwide arbitration. The district court granted the motion in part, compelling arbitration but leaving the determination “of individual versus classwide arbitration [] for the arbitrator to decide.”

Tasked with this directive, the arbitrator issued a “Partial Final Award on Clause Construction,” concluding that the broad “any dispute or claim” language of Plaintiffs’ employment agreements “could only be construed as allowing class proceedings.” RHI sought to vacate the award and, after the district court rejected that application, RHI filed a timely appeal.

According to the Third Circuit, the “crux” of RHI’s appeal is “whether the availability of classwide arbitration is a question of arbitrability.” If the answer is yes, then the question falls into a narrow range of gateway questions, which are presumed to be appropriate for “judicial determination unless the parties clearly and unmistakably provide otherwise.” And, if the answer is no, then the question is presumptively procedural in nature and may be resolved by the arbitrator.

Against this backdrop, the Third Circuit had little trouble concluding that whether claims may be arbitrated on a classwide basis was a “substantive question of arbitrability to be decided by a court.” The Third Circuit’s holding was predicated on two “independent” rationales. The Third Circuit first reasoned that this inquiry “affects whose claims may be arbitrated” and, therefore, settled precedent compelled the conclusion that a district court must decide the issue. Alternatively, the Court of Appeals found that the “permissibility of classwide arbitration” was a “question of arbitrability” and not a “procedural question” because determining whether the arbitration clause allowed either “traditional individual arbitration [or] class arbitration” went to “the very type of controversy to be resolved.” The Court of Appeals, thus, reversed the district court’s decision and remanded the case “for the District Court to determine whether [Plaintiffs’] employment agreements call for classwide arbitration.”

The Third Circuit’s decision demonstrates the Court’s unwillingness to read provisions into an agreement that the parties did not explicitly contract to, particularly where, as here, there are critical differences between classwide and individual arbitration, and the consequences of proceeding with one rather than the other is significant. And although counsel for Plaintiffs petitioned the Court of Appeals for en banc review, that petition was rejected on August 27, 2014. Stay tuned to this blog as the matter proceeds in the district court.

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