INTRODUCTION
Employer and their employees have a crucial relationship that must be in harmony for the smooth functioning of the business where both have to understand their obligations and need of the hour. Arbitration [1], Mediation and conciliation are some of the best gateways for dispute resolution through which an individual who is an employee and a company being an employer can mutually agree to resolve the dispute on even grounds. But the same cannot be said on the side of litigation, which can be difficult and costly.
However, in recent years, there has been a lot of debate regarding the inclusion of arbitration clauses in employment contracts. On the contrary, companies are finding ways to eliminate such clauses through different means [2]. In particular, the debate over whether businesses can require their employees to arbitrate disputes on their own has been reignited by the Supreme Court of the United State decision in Lamps Plus, Inc. v. Varela [3].
BACKGROUND
A data breach occurred at the California-based lighting manufacturer Lamps Plus (hereby acronym as a Company) in 2016[4]. Frank Varela, a worker for the business of Lamps Plus, whose data had been stolen in a phishing scam with other employees. Varela was compelled to arbitrate the matter individually rather than as a class action against the company. The Company argued that Varela was obligated to arbitrate his claims individually because he was required to sign an arbitration agreement as a condition of his employment, he is not provided with an option of class arbitration.
ABOUT THE CASE
The case arose when Varela brought a class-action lawsuit against lamps plus on behalf of himself and others affected by such a breach. Lamps Plus argued that the arbitration clause in Varela’s employment contract required him to arbitrate his claim individually, rather than as a part of our class action the arbitration clause stated that any dispute between the company and its employees would be resolved through individual arbitration rather than through the court system. Varela argued that the arbitration clause was ambiguous and did not clearly state whether class arbitration was allowed. He also argued that allowed to proceed with class action because it would be too expensive for him to litigate his claim individually.
The case made an appeal to Supreme Court which ultimately ordered with the majority, Justice John Roberts held that the arbitration clause did not allow for class arbitration, as it only mentions individual arbitration. The court found that Varela’s argument that the class was ambiguous was unpersuasive, as any ambiguity should be resolved in favour of arbitration. The court also rejected Varela’s argument for a class action because the court found that the California contract law[5] states “an agreement is ambiguous when it is capable of two or more constructions (which here means concerning options for dispute resolution available to the employees), both of which are reasonable” which governs arbitration agreements, thus the application of state law interprets that the agreement should be regarded as ambiguous but does not permit courts to invalidate an arbitration agreement based on the cost of individual arbitration.
Therefore, the question arises whether consistency with FAA (Federal Arbitration Act)[6] and ambiguous agreement can provide the necessary “contractual basis” for compelling class arbitration. The court held that it cannot conclude class arbitration because class arbitration is not only markedly different from the “traditional individualised arbitration” contemplated by the FAA, but it also undermines the most important benefits of that familiar form of arbitration. Statute the arbitration agreement requires more than ambiguity to ensure that the parties agreed to arbitrate on a class-wide basis.
The courts as per FAA “enforce arbitration agreements as per their respective arbitration clause” [7]. The Courts may ordinarily accomplish this end by relying on state “contract” principles to an extent that “stands as an obstacle to the accomplishment and execution of the full purposes and objectives” [8] of the FAA. At the end of this issue, it can be concluded that the interaction which is between a state contract principle ‘addressing ambiguity’ in the Lamps case arbitration agreement and a “rule of fundamental importance”[9] under the FAA, that arbitration “is a matter of consent, not coercion”[10] and since consent is essential under the FAA because arbitrators can wield only authority they are given that is, they derive their powers from the parties[11] agree to forgo the legal process and submit their disputes to private dispute resolution” (which is Arbitration here). That is why mutual consent for arbitration is mandatory [12].
COURT’S OBSERVATION
The dissenting judges also argued that the majority’s decision was inconsistent with the court’s previous decisions on arbitration. They noted that in previous cases, the court had held that arbitration agreements should be interpreted in the same manner as other contracts and that any ambiguity should be resolved against the party who drafted the agreement. They argued that the majority’s decision in lamps plus departed from this principle by interpreting that arbitration clause in favour of the employer rather than the employee.
IMPLICATION OF THE COURT’S DECISION
It can be extracted from the judgement that employers who want to prevent class actions will likely include explicit language in their arbitration agreements to private class arbitration. Employees who want to bring class action will need to carefully review the arbitration agreement to determine whether they are allowed to do so. The court’s decision also highlights the importance of understanding the terms of any contract before signing it. Employees to sign contracts with arbitration clauses should understand that they are given the right to sue in court and are instead going to have their dispute resolved through arbitration. Employers should ensure that the arbitration clauses are unambiguous to avoid potential legal challenges. [13]
INDIAN LAWS AND REMEDIES IN THE ABOVE SCENARIO
There is no exact concept of class arbitration in general in India till the time this article was written. In 2013 we have seen a massive scam called the “Satyam Scandal” [14]. There were fake customer identities, fake invoices to inflate revenue, forged board resolutions, and non-existent cash totalling some Rs. 1.27 Lakh Crore. This scam gave a shocking revelation of the country’s financial ecosystem lacks regulations (as at that time shareholders were not permitted to recover any of their losses) and a proper monitoring system. This gap was filled with the Companies Act [15], One of the regulations of the Companies Act [16] gives an opportunity for filing an application against any type of company except for banking companies such application can be accepted by NCLT which later can consolidate all similar applications from any other jurisdiction which can be heard at the class level.
Likewise, arbitration requires mutual agreement of parties for a dispute resolution while seen at the class level act together only, but the bigger concern is that Indian companies will have no reason to agree to class arbitration because the Indian court system is so slow that it deters shareholders from filing securities fraud class actions at all which will be against them in the agreed to arbitration. With the parties allowed to invoke arbitration, this will give both of them the opportunity to have the terms and rules of any arbitration beforehand. Companies Act is the primary act which provides class-action under section 245[17]. India has exhaustive labour codes (which are under review to be simplified under 4 Codes [18]) and different acts like Employment Compensation Act [19], Industrial Employment (Standing Orders) Act [20], The Trade Unions Act [21] and many more which are balanced acts with their respective objectives in the Preamble, providing sufficient protection to both employer and employee.
CONCLUSION
Now, if there is no concept of class arbitration then what alternative is there? In India, we have associations and unions at different industry levels and different stages representing their respective body and members. Trade unions can be said to be one of the alternatives to class arbitration where a representative of an individual in a trade union will be present or either puts his words forward to the organisation’s employer which due to the weightage of the unions and their demands in most of the cases fulfilled or heard, sometimes a mutual plan, settlement agreement or a resolution is provided where both the parties are agreed and dispute rarely course to an arbitration.
Author(s) Name: Ashendra Mani Pandey (Dr. Shakuntala Misra National Rehabilitation University, Lucknow)
[1] Chauhan, Vatsala – Arbitration in India: The Process and the Problems with a Special Focus on International Commercial Arbitration (July 1, 2020), (SSRN), <ssrn.com/abstract=3713559 or http://dx.doi.org/10.2139/ssrn.3713559>
[2] Supreme Court Rules Against Workers In Arbitration Case, (Wired, 21 May 2018), <www.wired.com/story/supreme-court-rules-against-workers-in-arbitration-case/>
[3] Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019)
[4] Ibid 3
[5] California Contract Law 1872, (Heading of Division 3 amended by Stats. 1988), Ch. 160, Sec. 14.
[6] Federal Arbitration Act 1925, (43 Stat. 883), (w.e.f. July 30, 1947), S 10381, 22200, et seq.
[7] American Express Co. V. Italian Colours Restaurant, 570 U.S 228 (2013)
[8] Federal Arbitration Act 1925, (43 Stat. 883), (w.e.f. July 30, 1947), S 160.202 (2).
[9] Ibid 3
[10] Ibid 3
[11] Ibid 3
[12] Ibid 3
[13] Ibid 3
[14] Dr Madan Lal Bhasin, Debacle of Satyam Computers Limited: A Case Study of India’s Enron, Vol. 23, No 3: May 2016, WULFENIA Journal, <www.researchgate.net/profile/Madan-Bhasin/publication/299482211_Debacle_of_Satyam_Computers_Limited_A_Case_Study_of_India’s_Enron/links/56fa9b3d08ae3c0f264bffbd/Debacle-of-Satyam-Computers-Limited-A-Case-Study-of-Indias-Enron.pdf?_sg%5B0%5D=started_experiment_milestone&origin=journalDetail> accessed on 2nd April 2023
[15] Companies Act 2013, (Act No. 18 of 2013), (w.e.f. 29th August 2013)
[16] Ibid.
[17] Companies Act 2013, (Act No. 18 of 2013), (w.e.f. 29th August 2013), S 245.
[18] Labour Law Reforms, (6th March 2020), <labour.gov.in/labour-law-reforms> accessed on 29th April 2023
[19] Employment Compensation Act 1923, (Amendment Act, 2017), (w.e.f. 12th April 2017)
[20] Industrial Employment (Standing Orders) Act 1946, (Act no. 20 of 1946), The act has been amended in its application to Maharashtra, Mysore, Madras, Andhra Pradesh jurisdiction.
[21] The Trade Unions Act 1926, (Modified as on 19th November 2018)
