Who Decides Whether the Agreement Permits or Prohibits Classwide Arbitration, a Court or the Arbitrator?

By: Kyle D. Kring and Tyler Kring

Posted on August 10, 2016

Just last week a small majority of the California Supreme Court in Sandquist v. Lebo Automotive, Inc. affirmed the Court of Appeal, holding that as a matter of state contract law, the question of whether the parties to an arbitration agreement agreed to class arbitration is an issue for an arbitrator, rather than court, to decide.

While this decision could very well be seen as a win for employees, the Court noted that arbitration agreement disputes shall be decided on a case-by-case basis. The starting point is to look at what the parties initially agreed to. Here, the majority found ambiguity in this agreement due to its silence on whether an arbitrator or court shall be the decision maker regarding class arbitration availability.

California is one of the most protective states toward employees. The drafting party - in this case the employer, Lebo Automotive - often has increased bargaining power. This creates contracts of adhesion resulting in hidden provisions favorable to the drafter. Due to the inherent nature of these contracts, any ambiguity is usually resolved in favor of the signing party.

Essentially, the Court reinforced the notion that the onus is on the employer to include proper language in arbitration agreements, specifically whether the agreement applies to class claims, to steer clear of ambiguity. If the employer fails to do so, the issue will likely be resolved by deciding what is most favorable to the employee. With that said, the Court's decision makes it essential that employers review their employment contracts and ensure they include all necessary provisions to protect themselves against issues similar to those decided in Sandquist v. Lebo Automotive, Inc.

Employers looking to avoid class arbitration and other employment related issues should consult with an experienced employment attorney at Kring & Chung, LLP.

Kyle Kring is the Managing Partner of Kring & Chung, LLP. He can be reached at (949) 345-1621 or kkring@kringandchung.com. Tyler Kring is a law clerk of Kring & Chung and can be reached at tkring@kringandchung.com.

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