Hunton Employment & Labor Perspectives

Who decides whether an arbitration agreement is unconscionable when the agreement explicitly delegates that decision to the arbitrator?  According to a slim majority of the U.S. Supreme Court in Rent-A-Center v. Jackson, No. 09-497, ___ U.S. ___, slip op. (June 21, 2010), the arbitrator does, if a party challenges the enforceability of the arbitration agreement.  The district court may only intervene if a party specifically challenges the validity of the agreement to delegate that decision to the arbitrator.  The decision makes it more difficult for a current or former employee who has signed an arbitration agreement with a proper delegation provision to avoid arbitration and bring a private lawsuit.  That is a positive result for pro-arbitration employers.

As a condition of his employment, Antonio Jackson signed an arbitration agreement with Rent-A-Center, West, Inc., 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.  Some time later, Jackson filed an employment discrimination suit against Rent-A-Center.  Rent-A-Center filed a motion under the Federal Arbitration Act to dismiss or stay the proceedings and to compel arbitration pursuant to the parties’ agreement.  Jackson opposed the motion on the ground that the arbitration agreement was unconscionable under Nevada law.  In response, Rent-A-Center argued that Jackson’s unconscionability argument was improperly before the district court because the delegation provision expressly stated that the arbitrator has exclusive authority to determine the enforceability of the arbitration agreement.  The district court granted Rent-A-Center’s motion.  However, the Ninth Circuit reversed and held that despite the delegation provision, the threshold question of unconscionability is for the court, not the arbitrator.

In the 5-4 decision authored by Justice Scalia, the majority reasoned that Jackson consented to have his disputes settled by arbitration, and it made “no difference” that the dispute happened to be about whether the arbitration agreement itself was enforceable.  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.