By: Rachel Hoffer

Seyfarth Synopsis: In 20/20 Communications, Inc. v. Crawford, the Fifth Circuit joined eight other circuits in holding that the availability of class arbitration is a “gateway” issue for courts, not arbitrators, to decide—unless there is “clear and unmistakable language” in the arbitration agreement to the contrary.  No circuit court has ruled to the contrary, and only the First, Second, and Tenth Circuits have yet to weigh in.  In 20/20 Communications, the latest decision to address this issue, the district court, over the employer’s objection, had held that the arbitration agreement authorized the arbitrator, rather than the court, to determine the class arbitrability issue.

The Fifth Circuit had no trouble finding that class arbitrability is a gateway issue for courts to decide because class arbitration is a completely different animal from individual arbitration.  In a class arbitration, the arbitrator’s award binds not just the individual named parties but absent parties as well.  Due process requires that those absent parties be given notice, an opportunity to be heard, and the right to opt out.  As a result, according to the Fifth Circuit, class arbitrations are bigger, costlier, more complicated, and less efficient than individual arbitrations.  And while arbitration is often desirable because it protects the privacy and confidentiality of the parties, those privacy interests become much more difficult to protect when arbitration proceeds on a class basis.  Because of these key differences, the Fifth Circuit held that the availability of class arbitration, like the question of whether the parties ever entered into a contract to arbitrate in the first place, is presumptively a question for the courts, not arbitrators.

Having determined that class arbitration is presumptively a threshold question for the courts, the Fifth Circuit next considered whether the parties in this particular case “clearly and unmistakably agreed to allow the arbitrator to determine that issue.”  The panel found no such “clear and mistakable language” here, emphasizing the following language from the parties’ agreement, which limited the arbitrator’s authority to hear only individual claims:

[T]he parties agree that this Agreement prohibits the arbitrator from consolidating the claims of others into one proceeding, to the maximum extent permitted by law.  This means that an arbitrator will hear only individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group of employees in one proceeding, to the maximum extent permitted by law.

The employees cited several provisions to support their position that the arbitrator should decide the question of class arbitrability:

  • “If Employer and Employee disagree over issues concerning the formation or meaning of this Agreement, the arbitrator will hear and resolve these arbitrability issues.”
  • “The arbitrator selected by the parties will administer the arbitration according to the National Rules for the Resolution of Employment Disputes (or successor rules) of the American Arbitration Association (‘AAA’) except where such rules are inconsistent with this Agreement, in which case the terms of this Agreement will govern.”
  • “Except as provided below, Employee and Employer, on behalf of their affiliates, successors, heirs, and assigns, both agree that all disputes and claims between them . . . shall be determined exclusively by final and binding arbitration.”

The panel agreed with the employees that, standing on their own, these provisions might support their argument that the arbitration agreement authorized arbitrators to decide gateway issues of arbitrability, including class arbitration.  But these provisions could not be divorced from the rest of the arbitration agreement, particularly the clause emphasized in the court’s decision that limited arbitration to individual claims.  As the panel explained, “it is difficult for us to imagine why parties would categorically prohibit class arbitrations to the maximum extent permitted by law, only to then take the time and effort to vest the arbitrator with the authority to decide whether class arbitrations shall be available.”  Indeed, two of the provisions cited by the employees include exception clauses, meaning that, when they conflict with other provisions of the arbitration agreement, like the class action bar, they have no effect.  And even if the court ignored the exception clauses, the provisions cited by the employees were general, and did not specifically address class arbitrations, while the class arbitration bar specifically prohibited arbitrators from arbitrating disputes on a class basis.  In light of the specific arbitration bar, the Fifth Circuit held that the three provisions cited by the employees weren’t enough to “clearly and unmistakably overcome” the presumption “that courts, not arbitrators, must decide the issue of class arbitration.”

Employers with class and collective action waivers in their arbitration agreements have reason to celebrate.  Under the Fifth Circuit’s holding in 20/20 Communications, when an arbitration agreement prohibits class arbitration, class arbitrability will almost always be a question for the courts, not for arbitrators.  To be sure, it’s difficult to imagine when an arbitration agreement prohibiting class arbitration would include language that clearly and unmistakably allows the arbitrator to decide the issue of class arbitrability, when language broadly authorizing the arbitrator to decide issues of arbitrability is not enough.  Of course, even when the agreement is silent on the issue of class arbitration (which has other important implications, as the Supreme Court recently held in Lamps Plus), the court’s holding favors employers:  class arbitration is presumptively a question for the courts, unless the agreement’s language clearly and unmistakably vests the arbitrator with authority to decide that gateway issue.