Authored by James Hlawek

If you are loathe to engage in class arbitration, as most employers are, then a recent California appeals court decision, Garden Fresh Restaurant Corp. v. Moreno, will come as good news.  The appeals court found that a judge, rather than an arbitrator, should decide whether class arbitration is permissible under an arbitration agreement that, like many other arbitration agreements, says nothing about whether class arbitration is allowed or prohibited.

The appeals court’s decision is in line with the only two federal Courts of Appeals to have addressed the issue–the Third Circuit’s decision earlier this year in Opalinski v. Robert Half Int’l Inc. and the Sixth Circuit’s decision last year in Reed Elsevier, Inc. v. Crockett, which the appeals court discussed favorably in its decision.  These decisions are favorable for employers because it is likely that arbitrators are more inclined than judges to find class arbitration permissible.

In Garden Fresh, a former employee brought class and representative claims against her employer in a California trial court.  The employee signed an agreement to arbitrate employment disputes, but it said nothing about class arbitration.  The employer moved the trial court to compel individual arbitration.  The court agreed that the disputes should be arbitrated, but left it to the arbitrator to decide whether it would be on a class or individual basis.  The employer appealed.

The appeals court found that the judge should have decided the class vs. individual issue.  The court found that the issue is more like a “gateway issue” (which is for a judge to decide, absent clear evidence that the parties wanted the arbitrator to decide it) than a “subsidiary issue” (which is for an arbitrator to decide).  The court pointed out that the U.S. Supreme Court had recently noted in Oxford Health Plans v. Sutter that the issue of who should decide class vs. individual arbitration was still unresolved.  But the court found that in other rulings the Supreme Court had given every indication short of a holding that it was a “gateway issue” for a judge to decide.

In particular, the appeals court pointed to Stolt-Nielsen v. AnimalFeeeds Int’l Corp. and AT&T Mobility v. Concepcion.  In those cases, the Supreme Court found that there are “fundamental” differences between class and individual arbitration:  Class arbitrations are less efficient.  There is more at stake.  There are due process concerns for class members. Confidentiality is more difficult.  Thus, the appeals court found that the decision between class and individual arbitration is no mere “subsidiary issue” for an arbitrator to decide.  Rather, it is “vastly…consequential” because an incorrect decision could force an employer to arbitrate thousands of claims that it did not agree to arbitrate.  This, the court held, is a classic “gateway issue” that a trial court judge should decide for both class and representative claims.

And the appeals court did not stop with sending the class vs. individual decision to a trial court judge.  It also gave a not-so-subtle nudge to decide the issue in favor of individual arbitration.  The appeals court stated that “it is difficult to see how the trial court could find” that the parties agreed to class arbitration where (1) the agreement says nothing about class arbitration; and (2) the parties agreed that there was no additional evidence on the issue.

The permissibility of class arbitration is still hotly disputed.  Other state courts and federal district courts (including at least two in California) have found that an arbitrator should decide the class vs. individual issue.  Others have found that class arbitration is permissible even when the arbitration agreement says nothing about class arbitration.  But Garden Fresh, along with the recent decisions of the Third and Sixth Circuits, shows that the trend may be moving against class arbitration.