If your employment agreement requires arbitration under the rules of the American Arbitration Association (“AAA”) beware. A California Court of Appeals in Universal Protection Service LP v. Superior Court, No. C078557 (Cal. Ct. App. Aug. 18, 2015) decided an employment arbitration agreement that incorporated the AAA National Rules for the Resolution of Employment Disputes vested the arbitrator with the power to decide whether the agreement authorized classwide relief.

The Universal Protection Service case centered on reimbursement of security guards for employment related business, equipment and training. Each guard had signed an employment arbitration agreement requiring them to arbitrate employment disputes under AAA rules.

The guards filed a class action against Universal for reimbursement of their business and training expenses, as well as other relief. Universal requested the court order individual arbitration for each guard. The trial court denied the motion and ordered class arbitration. Universal
then petitioned the appellate court to set aside the order as being unauthorized under the arbitration agreement.

The Appellate Court determined that the AAA rules granted the arbitrator the authority to decide threshold jurisdictional issues, including whether class arbitration is permitted. It held that the parties’ “agreement to conduct their arbitration under the AAA Rules constitute[d] clear
and unmistakable evidence of their shared intent that the arbitrator decide whether it permits arbitration of class claims.”

So what does this mean? If your employment arbitration agreement requires arbitration pursuant to the AAA rules, the arbitrator may now have the authority to decide threshold jurisdictional issues, including the arbitration of class claims. Without a well-drafted class action waiver, an arbitrator may very well determine claims for your entire work force as a class. Is that good for your business?

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.