SCOTUS Grants Cert in Employment Arbitration

The Supreme Court granted cert Friday in an employment arbitration case addressing whether the arbitrator or the court should determine the enforceability of an arbitration clause.  The outcome could do mischief to the FAA and to Supreme Court precedent.  Once again there is reason to lament the harm that the practice of employment arbitration is wreaking upon commercial arbitration principles.

Certiorari was granted on January 15, 2010, in Jackson v. Rent-A-Center West, Inc. (9th Cir. September 9, 2009).   As the Ninth Circuit wrote, “The threshold question before us is whether a court or an arbitrator is to decide whether an arbitration agreement was unconscionable and hence unenforceable.”

The claimant, Antonio Jackson, was required to enter into an arbitration agreement with Rent-A-Center as a condition of his being hired.  The agreement permitted modification or revocation by the parties and allowed Jackson an opportunity for attorney review before signing.  The agreement also 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.

Jackson later asserted claims of discrimination under 42 U.S.C. § 1981 in the U.S. District Court in Nevada, alleging that the arbitration agreement was unenforceable because it imposed onerous costs on him; it limited discovery; and it lacked mutuality.   Before the District Court, Jackson could not demonstrate excessive costs (a determination that the Circuit Court accepted) and conceded that the discovery provision alone was not unconscionable.  Relying on the languange in the agreement that “clearly and unmistakenly provides the arbitrator with the exclusive authority to decide whether the Arbitration Agreement is enforceable,” the District Court granted Rent-A-Center’s motion to dismiss the suit and compel arbitration, holding that “the question of arbitrability is for the arbitrator.”

The Ninth Circuit reversed in part and remanded the matter to the District Court, with instructions that “the court must decide the threshold question of arbitrability when a plaintiff challenges an arbitration agreement as unconscionable, but the agreement provides that the enforceability of the arbitration agreement is itself an issue to be resolved through arbitration.”

Now, if you’re a party to a commercial agreement that includes an arbitration provision, how do you want this to turn out?  Say your goal is to stay out of court at any stage in the proceedings.  If the Ninth Circuit is affirmed, your counterpartycan allege that the arbitration agreement is invalid — however specious the grounds — and you will find yourself in court defending its enforceability.  (This is so even if the parties expressly and unequivocally agree that the arbitrator is vested with the power to make this determination and even, as the Jackson dissent observes, if it is “an arbitration agreement more favorable than most and unconscionability allegations that are thinner than most.”)

If on the other hand the Supreme Court overrules Jackson, and holds that arbitration agreements vesting arbitrability decisions to the arbitrator are valid on their face, is the holding of First Options of Chicago v. Kaplan somehow modified or extended, such that the mere recitation in an arbitration agreement of arbitral authority precludes a court from any investigation of alleged coercion or fraud?

Had this matter arisen in a dispute between merchants it would be abstruse but welcome.  But coming out of the employment sector it is weighted with additional, non-mercantile concerns of statutory enforcement, unequal bargaining power, and an entire basket of equitable and public policy concerns.  These issues are, one could argue, extraneous to the arbitrability issue per se, and threaten to skew arbitration law beyond its commercial, mercantile intent, and its original and fundamental utility.

But there you have it.  Fingers crossed (but for what?).

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