Employment Law Report
Supreme Court Expands Enforcement of Arbitration Clauses Calling for The Arbitrator To Decide Arbitrability Issues
The U.S. Supreme Court on June 21, 2010, in a 5 to 4 decision in Rent-A-Center, West, Inc. v. Antonio Jackson, 561 U.S. ____ (2010), expanded the reach of clauses in arbitration agreements that provide for the arbitrator to resolve questions of arbitrability when the challenge is to the enforceability of the entire agreement.
Antonio Jackson filed an employment-discrimination lawsuit under 42 U. S. C. §1981 against his former employer, Rent-A-Center. Rent-A-Center filed a motion based on the Federal Arbitration Act (FAA) to dismiss or stay the proceedings in federal court and compel arbitration, claiming that the Mutual Agreement to Arbitrate Claims (“Agreement”) Jackson had signed when he became employed precluded his suit from being pursued in court. The Agreement provided for arbitration of all claims arising out of his employment including discrimination claims. It also stated that the arbitrator had the exclusive authority to resolve disputes over not only interpretation and application of the Agreement but also any challenges directed at enforceability of the Agreement.
Jackson contended that the Agreement in its entirety was unenforceable by virtue of its being unconscionable under state law. Rent-A-Center in opposition asserted that the exclusive authority to resolve any dispute about enforceability was vested in the arbitrator in the above quoted “delegation” clause. The district court granted Rent-A-Center’s motion to dismiss the case and to compel arbitration, finding that the arbitrator had the exclusive authority to decide whether the Agreement is enforceable in the first instance. The U.S. Court of Appeals for the Ninth Circuit reversed in part, affirmed in part, and remanded the case to district court, holding that where one party contends the agreement to arbitrate is unconscionable, the district court must make the threshold decision as to whether the dispute is arbitrable.
In an opinion by Justice Scalia, joined in by Chief Justice, Roberts, and Justices Kennedy, Thomas and Alitto, the court’s majority held that Jackson’s challenge to the entire agreement based on unconscionability grounds should have been decided by the arbitrator, not a federal district court.
Here, Rent-A-Center sought enforcement of the so-called delegation clause under which the “gateway” question of arbitrability would be decided. The majority of the court held that “[a]n agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other.” The court went on to state that the question was “whether the delegation provision is valid under §2.”
In analyzing section 2 of the FAA, Justice Scalia pointed out that there were two ways to contest the validity of an agreement to arbitrate, a challenge to: (1) the specific provision to arbitrate; and (2) the agreement as a whole. As to ground one, he noted that if there is a challenge to the specific provision to arbitrate based on unconscionability or other proper grounds, then the court must resolve that challenge before reaching a decision on whether to compel arbitration.
However, in the instant matter, the majority held that Jackson failed to challenge, pursuant to section 2 of the FAA, the validity of the delegation provision itself; but rather challenged enforceability of the Agreement in its entirety. Therefore, it was appropriate to enforce the Agreement’s delegation provision relating to such a challenge to the agreement as a whole and order that issue to be decided by an arbitrator.
In dissent, Justice Stevens, joined by Justices Ginsburg, Breyer and Sotomayor, argued that since Jackson claimed the entire agreement (of which the delegation clause was a part) was unconscionable, then, if successful, nothing would remain to be arbitrated. Therefore, it was for the district court to decide the gateway issue of arbitrability.