Employment Arbitration: Supremes Deal a Blow to Clarity

Prima Paint teaches that the arbitration agreement nestled in a commercial contract has a legal validity of its own, and that once a court determines that the “nestled” agreement to arbitrate is enforceable, then the arbitrator and not the court shall determine the enforceability of the rest of the contract.

The interesting thing about the arbitration agreement in Rent-a-Car, West v. Jackson is that there wasn’t anything for the arbitration agreement to nestle into.  The document evidenced only an agreement to arbitrate.  Other terms of any commercial agreement between Jackson and his employer were set forth elsewhere.  This was just a “Mutual Agreement to Arbitrate Claims.” 

So when Jackson was prompted to sue his employer for racial discrimination, the federal district court didn’t have an arbitration agreement to sever from the rest of the contract.  It had only the agreement to arbitrate itself, in all its lonely glory.

Which Jackson said was unconscionable because it was thrust upon him and unfairly limited his ability to vindicate his statutory rights.

And which provided that questions of unconscionability were to be decided by (guess who?) the arbitrator, not the court.  Take that, Prima Paint.

As the Court put it, “this case differs from Prima Paint [and other cases] in that the arbitration provisions sought to be enforced in those cases were contained in contracts unrelated to arbitration . . . [while in] this case, the underlying contract is itself an arbitration agreement.”  Slip op. at 8.

No problem, says the Court.  Jackson challenges the arbitration agreement as a whole but not the provision delegating unconscionability to the arbitrator.  Therefore, in the absence of an allegation that that particular provision is unenforceable, the provision is presumptively valid under FAA Section 2.  So the arbitrator, not the court, shall decide the enforceability of the agreement.

The agreement to arbitrate.

The one that Jackson says is unenforceable.

No problem here, right?  Jackson never alleged that the delegation provision in particular was unconscionable — just that the entire agreement was.  And the delegation provision is (guess what?) severable from the rest of the agreement to arbitrate!  Surely, explains the Court, “there is no logical reason why an agreement to arbitrate one controversy (an employment-discrimination claim) is not severable from an agreement to arbitrate a different controversy (enforceability).”  Id. at n. 3. 

Well if you want to press it, there is no reason why the parenthetical phrase that begins this sentence is not severable from the declarative clause that ends it.

I just finished teaching a law school course on ADR and I’m sitting here  trying to figure out this distinction so I can do a bang-up job the next time I teach the course.  I see how the arbitration agreement is severable from the rest of a contract.  Now, is the law that each aspect of the arbitration agreement severable from each of the other aspects of the arbitration agreement?  Professor, can I ask a few questions please?

1.  Is this gonna be on the test?

2.  If I want to allege before a federal district court that an arbitration agreement is unenforceable under FAA Section 2, do I have to allege each aspect that renders it unenforceable?  Each provision?  Each phrase?  Each word?

3.  How about if the Court found for Jackson?  If I enter into a contract to provide McDonald’s with buns, and sign a bun contract with an arbitration clause, could I allege that it’s unconscionable because it was forced on me by a company with greater bargaining power?  At least I can buy myself a few months getting my counterparty wrangled up in federal district court?  And then the Court of Appeals?  And then … ?

4.  Should everybody now draft their arbitration clauses on separate pieces of paper, with separate signature blocks, from the main agreement, so they can evade court scrutiny?

5.  Helpful as Rent-a-Car is, what will the Court decide when confronted with this question with a contract that is (gulp!) written as a single document!!??

6.  Do I still have time to readjust my bets on whether the Arbitration Fairness Act will pass, short-cutting all of this nonsense by rendering all arbitration agreements in all employment relationships unenforceable as a matter of federal law?  And won’t we be happy then?

…At least I’ll know how to teach it….

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