In Rent-A-Center, W., Inc. v. Jackson (June 21, 2010), the U.S.
Supreme Court held that when an agreement covered by the Federal Arbitration Act
(FAA) delegates the authority to determine the arbitrability of the agreement to
the arbitrator, claims that challenge the enforceability and validity of an
agreement as a whole will be determined by the arbitrator. Only claims that
specifically challenge the enforcement of the delegation provision will be
considered by a court.
As a condition of his employment, Antonio Jackson signed an arbitration
agreement with Rent-A-Center, West, Inc. ("Rent-A-Center"), which contained a delegation provision
expressly providing that the arbitrator would have exclusive authority to
resolve any dispute about the enforceability of the arbitration agreement. When
Jackson filed an employment discrimination suit against Rent-A-Center,
Rent-A-Center filed a motion under the FAA to dismiss or stay the proceedings
and to compel arbitration. Jackson opposed the motion on the ground that the
arbitration agreement was unconscionable under Nevada law.
The District Court found that the arbitration agreement had delegated the
question of determining unconscionability of the arbitration agreement to the
arbitrator and granted Rent-A-Center’s motion to dismiss and motion to compel
arbitration. On appeal, the 9th Circuit reversed in part and held that the
District Court should have decided whether the agreement was unconscionable
before deciding the motion to compel arbitration.
Supreme Court Opinion
The Supreme Court reversed the 9th Circuit, holding 5-4 that where an
arbitration agreement delegates to an arbitrator authority to determine the
enforceability of the agreement, only a specific challenge to the delegation
provision itself may be resolved by a court. However, a challenge to the
enforceability of the agreement as a whole (e.g., that it is “unconscionable”)
must be resolved by the arbitrator.
Writing for the majority, Justice Antonin Scalia found that Rent-A-Center
is entitled to have an arbitrator consider Jackson’s claim that an
arbitration agreement is unconscionable, because Jackson did not specifically
challenge the delegation of “gateway” issues to the arbitrator. Because Jackson
failed to challenge the delegation provision specifically, the majority
concluded that the delegation provision must be treated as valid, and
accordingly, any challenge to the validity of the agreement as a whole must be
left for the arbitrator. Chief Justice John Roberts and Justices Anthony
Kennedy, Clarence Thomas and Samuel Alito joined in the majority opinion.
Dissenting, Justice John Paul Stevens asserted that questions of
arbitrability may be resolved by an arbitrator where parties to a contract have
clearly and unmistakably shown their intent for the arbitrator to do so.
Jackson’s claim that the agreement was unconscionable “undermines any suggestion
that he ‘clearly’ and ‘unmistakably’ agreed to submit questions of arbitrability
to the arbitrator,” Stevens wrote. Justices Ruth Bader Ginsburg, Stephen Breyer
and Sonia Sotomayor joined in the dissent.
This decision will be important in employment, consumer and arbitration law.
Most challenges to the enforceability of an arbitration agreement apply to the
entire agreement, and not only to the specific delegation provision. The
Rent-A-Center decision will limit the number of challenges to arbitration
agreements that will be heard in court. As a result, more cases will be
decided by arbitrators rather than the courts.
In light of Rent-A-Center, companies that want their disputes resolved
in arbitration versus court should include delegation provisions in their
arbitration agreements to ensure that questions relating to the enforcement or
validity of the arbitration agreement will be resolved by arbitrators.
For additional information or assistance in drafting or updating mandatory
arbitration agreements, please contact the authors or any other member of the
McGuireWoods Labor & Employment team.