Morris Manning & Martin, LLP

The Arbitrability of Employment Contracts

10.14.2010

On June 21, 2010, the Supreme Court issued an important decision for employers utilizing or considering utilizing employment arbitration agreements.  In Rent-A-Center, West v Jackson, the Court ruled on the enforceability of an arbitration clause included as part of an employment agreement.   

The dispute arose when Antonio Jackson filed a discrimination lawsuit against Rent-A-Center in federal court.  Citing the arbitration clause Jackson had signed in his contract requiring all “past, present or future” disputes between the two employment parties to be submitted to arbitration, Rent-A-Center filed a motion to compel arbitration. 

Jackson argued that the arbitration agreement was “unenforceable in that it is unconscionable” (that is, excessive or beyond what is just and reasonable).  Rent-A-Center countered that the fairness of the terms of the agreement was not the court’s business to decide; it was the arbitrators.  Rent-A-Center based its position on the delegation provision of the agreement which provided:

"The Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to, any claim that all or any part of this Agreement is void or voidable."

Justice Scalia framed the issue to be whether the agreement is unconscionable.  Thus, the question was whether the delegation provision - the agreement to arbitrate threshold issues concerning an arbitration agreement - was valid under the Federal Arbitration Act.  Based on an earlier case, the Court declared that the only type of validity challenge relevant to the enforceability of an arbitration agreement is to specifically challenge the delegation provision, not the contract as a whole. 

Because Jackson challenged the validity and fairness of the contract as a whole, and not the delegation provision specifically, the Court ruled that Rent-A-Center’s delegation provision stood and that the question of the enforceability of arbitration resides with the arbitrator alone.

Employers with arbitration agreements would be wise to revisit their existing arbitration agreements, and insert a delegation provision if not already included in the agreement.

This decision can be read at http://www.supremecourt.gov/opinions/09pdf/09-497.pdf

If you have any questions about this Employer Advisory, please contact one of our Employment attorneys.