The U.S. Supreme Court has issued numerous decisions over the past decade addressing arbitration agreements. [1] In one of the Roberts Court’s first forays into the arbitration arena, the Court held that class or collective arbitration is only available where the parties have affirmatively agreed to resolve their disputes through such procedures. [2] But who determines whether the parties have so agreed — a court or an arbitrator?
The Supreme Court has not yet answered that question. [3] But the federal courts of appeals have, largely ruling that the availability of class arbitration is a gateway question of arbitrability presumptively for a court to decide. [4] In Herrington v. Waterstone Mortgage Corp., [5] the Seventh Circuit agreed. [6] The decision bolsters businesses’ ability to obtain a decision as to whether they can compel individual arbitration from a court — especially in the absence of an express class arbitration waiver provision — and thus preserve their ability to seek an appeal of an unfavorable decision as of right.
Case Background
Herrington filed a putative class and collective action against her employer Waterstone Mortgage Company (“Waterstone”), alleging wage and hour violations under the Fair Labor Standards Act and breach of her employment contract. [7] Based on the arbitration clause in Herrington’s employment agreement, the district court compelled the case to arbitration. [8] The arbitration agreement contained a class action waiver, but Herrington argued that it was unenforceable under the National Labor Relations Act (“NLRA”). [9] Specifically, she asserted that because the NLRA grants workers the right “to engage in … concerted activities,” it allows them to pursue class and collective actions against their employers. [10] The district court agreed, [11] and Herrington’s claims proceeded on a class and collective-basis in arbitration.
The arbitrator then determined that despite the class action waiver provision, the parties’ agreement authorized class and collective arbitration. [12] The arbitrator certified a class, and at the conclusion of the collective arbitration, issued a $10 million judgment for Herrington and the class. [13] After the district court entered a judgment enforcing the arbitration award, Waterstone appealed to the Seventh Circuit. [14]
Seventh Circuit Decision
The Seventh Circuit considered two issues on appeal, namely (1) whether the district court incorrectly found that the class action waiver was unenforceable, and (2) whether it is for a court or an arbitrator to decide if an arbitration agreement permits class or collective arbitration. [15]
The Seventh Circuit dispatched the first question easily. While Herrington was on appeal, the Supreme Court ruled definitively that class action waivers in employment arbitration agreements are enforceable and do not violate the NLRA. [16] Accordingly, the Seventh Circuit held that the district court erred in striking the class action waiver. [17]
As to the second question, Herrington argued that notwithstanding the class action waiver, the arbitration agreement “reflects the parties’ affirmative consent to class and collective arbitration.” [18] The Seventh Circuit described Herrington’s argument as “implausible” but found itself compelled to decide in which venue — court or arbitration — the argument should be considered. [19]
The Seventh Circuit first noted that “[e]very federal court of appeals to reach the question has held that the availability of class arbitration is a question of arbitrability.” [20] The court next declared its agreement with those decisions, aligning itself with the Third, Fourth, Sixth, Eighth, Ninth, and Eleventh Circuits in holding that courts must decide whether an arbitration agreement permits class or collective arbitration. [21]
The Seventh Circuit predicated its decision on three bases. First, the court explained that the class-arbitration question requires determination of the scope of persons “with whom” the parties have agreed to arbitrate, a “foundational question of arbitrability” typically reserved for the courts. [22] Second, the court reasoned that the class-arbitration question implicates “whether the agreement to arbitrate covers a particular controversy,” another fundamental...
