Supreme Court Upholds Validity of Provision Delegating Contract Enforceability Authority to Arbitrator

On June 21, 2010, the United States Supreme Court ruled in favor of Rent-A-Center (“RAC”) in Rent-a-Center v. Jackson. (pdf)  In a 5-4 decision, the Supreme Court reaffirmed that the Federal Arbitration Act (FAA) permits parties to delegate authority to an arbitrator to determine whether the contract at issue is unconscionable.

When he was hired by RAC, Antonio Jackson signed an agreement to arbitrate claims arising from his employment instead of going to court. The agreement also required that any challenges to its enforceability likewise must be submitted to an arbitrator for decision. The agreement expressly stated that:

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.

Despite the terms of his arbitration agreement, Jackson filed a complaint in the United States District Court for the District of Nevada alleging employment discrimination and retaliation. When RAC moved to dismiss Jackson’s complaint and compel arbitration, Jackson alleged that the agreement was unenforceable because certain provisions in his view were unconscionable. RAC, relying on the language of the agreement, argued that the unconscionability issue must be arbitrated because Jackson’s agreement required that it be submitted to arbitration. Jackson disagreed, arguing that only a court could decide the issue, even though his agreement required that it be arbitrated. The Supreme Court agreed with RAC and held that Jackson’s challenge to an arbitration agreement should be decided by an arbitrator chosen by the parties, and not a judge, because the agreement expressly delegated that authority to an arbitrator.

The Supreme Court’s decision settled an important question in which there was a conflict in the federal circuit courts of appeal. Several circuit courts had adopted the view eventually confirmed by the Supreme Court. However, in the Jackson case, the San Francisco-based Ninth Circuit Court of Appeals created a conflict when it concluded that parties cannot delegate authority to the arbitrator to decide issues of enforceability. That conflict was resolved when the Supreme Court reversed the Ninth Circuit in the Jackson case.

The case was handled by Rob Friedman, a shareholder in Littler Mendelson’s Dallas office, and Henry Lederman, a shareholder in Littler’s Walnut Creek, California, office.

For more information on this decision, see Littler’s ASAP: U.S. Supreme Court Rules Arbitration Clause Delegating Contract Enforceability Issues to Arbitrator Is Enforceable by Henry Lederman.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.