Human Resources News & Insights

Arbitration clauses: It’s what they DON’T say that can get you in trouble

Arbitration clauses are common these days — most employers figure the odds of winning over a single business professional are a lot higher than trying to sway a group of laypersons who are probably pro-employee to begin with. But a recent Supreme Court decision points out the importance of carefully crafting those arbitration agreements.  

At issue in the recent case was whether or not the language of an arbitration clause specifically bars class-action arbitration. The multi-member scenario, said Kevin E. Vance of the law firm Duane Morris, that could well prove to be “high stakes, ‘bet the company’ litigation.”

Here’s the background of the case, as outlined in court papers:

John Sutter, a pediatrician, entered into a contract with petitioner Oxford Health Plans, a health insurance company. Sutter agreed to provide medical care to members of Oxford’s network, and Oxford agreed to pay for those services at prescribed rates.

Several years later, Sutter filed suit against Oxford in New Jersey Superior Court on behalf of himself and a proposed class of other New Jersey physicians under contract with Oxford.

The complaint alleged that Oxford had failed to make full and prompt payment to the doctors, in violation of their agreements and various state laws.

Oxford moved to compel arbitration of Sutter’s claims, relying on the following clause in their contract:

“No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator.”

The state court granted Oxford’s motion, thus referring the suit to arbitration.

Asked arbiter for interpretation

The parties agreed that the arbitrator should decide whether their contract authorized class arbitration, and he determined that it did. Noting that the question turned on “construction of the parties’ agreement,” the arbitrator focused on the text of the arbitration clause quoted above.

He reasoned that the clause sent to arbitration “the same universal class of disputes” that it barred the parties from bringing “as civil actions” in court:

The “intent of the clause” was “to vest in the arbitration process everything that is prohibited from the court process” And a class action, the arbitrator continued, “is plainly one of the possible forms of civil action that could be brought in a court” absent the agreement.

Accordingly, he concluded that “on its face, the arbitration clause . . . expresses the parties’ intent that class arbitration can be maintained.”

Oxford filed a motion in federal court to vacate the arbitrator’s decision on the ground that he had “exceeded [his] powers” under §10(a)(4) of the FAA. The District Court denied the motion, and the Court of Appeals for the Third Circuit affirmed.

And the Supreme Court ruled against the company. The upshot of the decision, in Vance’s words:

If an arbitration agreement is ambiguous regarding whether class action arbitrations are allowed, then the issue is left up to the interpretation of the arbitrator.  And if the arbitrator decides that class action arbitrations are allowed, his decision will likely be final.

The lesson: As always, the devil’s in the details. Might be a good time to recheck your arbitration agreement to make sure you’re covered on all possible fronts.

Cite: Oxford Health Plans LLC v. Sutter

 

 

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