US Supreme Court strengthens arbitration requirement for business disputes

A recent case digs into the details of arbitration agreements. The case involves a review of an arbitration agreement and an analysis of the Federal Arbitration Act (FAA). The FAA requires courts to enforce arbitration agreements based on the terms provided within the agreement itself.

FAA applied to a specific case: What was the problem?

In this case, an individual worker accused his employer of negligence, breach of contract and invasion of privacy. The allegations were in connection with a breach of security at the employer. Essentially, a hacker breached into the company’s software and was able to gather the workers’ personal information. This led to the hackers stealing at least one employee’s identity and using the information to file a fraudulent tax return.

The worker filed suit against the employer, stating the employer’s negligence led to the fraudulent tax return. Ultimately, the employee found other similarly situated employees and attempted to arbitrate the matter as a class action instead of on his own.

The company argued that the arbitration should move forward on an individual basis. After many appeals, the dispute reached the US Supreme Court. The Supreme Court held in favor of the business, stating when an agreement is “silent” on the availability of class-action arbitration, cases must move forward on an individual basis.

From single case to big picture: What does this mean for businesses?

The outcome of this case is good news for employers.  Nevertheless, the defendant in this case endured a lot of litigation and faced significant risk that the outcome might have been different.  An arbitration clause that specifically did not allow for class action arbitration would have spared this employer significant trouble.

An attorney experienced in drafting agreements, including ones containing arbitration provisions should review your agreements to make you aware of these sorts of risks.