Published on:

Class Action Defense Cases: American Arbitration Association (AAA) Enforces Binding Individual Arbitration While JAMS Allows Plaintiff To Unilaterally Include Dozens Of Employees In Single Arbitration Proceeding (2015)

AAA Requires Separate Arbitration Petitions by Employees Subject to Arbitration Clause with Class Action Waiver but JAMS Permits Plaintiff to Unilaterally Join Dozens of Individual Employee Claims in Single Arbitration

JMBM recently litigated a labor law class action where the employees were bound by arbitration clauses with class action waivers. Some of those agreements require arbitration before AAA. Others required arbitration before JAMS.

JMBM obtained a court order requiring “binding individual arbitration” before JAMS. Plaintiff’s counsel responded by filing an arbitration petition on behalf of 20 individuals. Plaintiff’s counsel also filed another arbitration petition with AAA on behalf of 7 individuals. In other words, plaintiff’s counsel sought to proceed with a “group” arbitration rather than “individual.” We objected.

AAA promptly decided that, as a purely procedural matter, it would not compel our client to participate in a group arbitration over its objection. Because we were not willing to stipulate to such a proceeding, it required plaintiff’s counsel to file 7 separate petitions. It took AAA but a few days to make this decision.

JAMS, on the other hand, took more than a month to conclude that, purportedly as a procedural matter, it would compel our client to participate in a group arbitration over its objection. Even more disturbing than its decision was the process utilized by JAMS to resolve the issue and the reasoning behind it.

As a preliminary matter, it is well established that the scope of an arbitration clause is to resolved either by the court or by the arbitrator. Even plaintiff’s counsel admitted this to be the law. Our disagreement with plaintiff’s counsel centered on our belief that it was a decision for the trial court to resolve under the facts of this case, while they argued that it was a matter for the arbitrator to resolve.

Unable to resolve the procedural question without a legal opinion, JAMS unilaterally appointed one of its mediators to rule on the issue. In other words, rather than appoint an arbitrator to address the issue – a decision that would necessitate all of the required disclosures from the arbitrator and that would provide each side with their right to object to the particular arbitrator being appointed – JAMS put the matter in the hands of a panel mediator. No statute or case authority permits such an individual to rule on the scope of an arbitration clause, but nevertheless JAMS followed this procedure.

Further, the mediator (an attorney rather than a retired judge) reasoned that “group” arbitration was appropriate because (1) JAMS could have “consolidated” the separate claims, and (2) consolidation would avoid inconsistent results. This reasoning is troubling and, frankly, absurd. First, you cannot “consolidate” a single action. In order to invoke JAMS’s rules governing “consolidation,” there must first be separate arbitration petitions filed which a party then seeks to consolidate. To allow a party to unilaterally “consolidate” the claims puts the proverbial cart before the horse and deprived our client of its right to oppose consolidation. Second, each individual arbitrant’s claims must rise or fall on their own merits. Some may win; others may lose. To permit a “group” arbitration proceeding in order to ensure that either everyone wins or everyone loses is to treat the proceeding as some sort of class action, where the claims share commonality and typicality traits. No arguments were ever submitted to JAMS concerning commonality or typicality, and treating the claims as some sort of “mini class action” violates the express terms of the arbitration clauses at issue, which include class action waivers.

We believe this is a very important issue. Because of the risk of being compelled to participate in a group arbitration, companies should consider modifying their arbitration clauses covering employee disputes so as to require arbitration before AAA rather than JAMS.