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Ban class actions in arbitration agreements

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in Discrimination and Harassment,Human Resources

If your arbitration agreement is more than a year old, chances are it needs updating. That’s especially true if the contract doesn’t specifically ban class-action arbitrations.

As a recent 2nd Circuit Court of Appeals decision shows, leaving out that prohibition could prompt an arbi­trator to treat one employee’s complaint as a class action covering many employees.

Remember, as the employer, you are in the driver’s seat when it comes to drafting arbitration agreements. Make sure they say exactly what you intend.

Recent case: Laryssa Jock and 18 other female sales employees for Sterling Jewelers filed EEOC complaints alleging the company discriminated against women.

All the women had signed arbi­tra­tion agreements, so they filed requests for arbitration.

The arbitrator hearing the case looked at the agreement and saw nothing that banned class-action arbi­tration. Therefore, she considered the case as if it had been brought on behalf of all similarly situated women working for Sterling. She then concluded the women had been the victims of sex discrimination and ordered back pay for them all.

Sterling appealed, arguing that nothing in the agreement specifically allowed class actions.

The 2nd Circuit Court of Appeals concluded that, because the agreement contained no language banning class-action arbitration, they were in fact allowed. Because the employer wrote the agreement, the court reasoned it could have included the language if it wanted. The court then ordered Sterling to pay the women exactly as the arbi­trator had ordered. (Jock, et al., v. Sterling Jewelers, No. 10-3247, 2nd Cir., 2011)

Final note: Since it is always the employer that writes the arbitration agreement, the language will be interpreted in a way that favors the employees.

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