Supreme Court Decision Limits Judicial Review of Arbitration Agreements

The U.S. Supreme Court's docket last term was replete with cases involving procedural questions as to how employment law disputes between parties should be resolved, several of which addressed disputes regarding arbitration agreements. In one such case, Rent-A-Center, West, Inc. v. Jackson, the Court was asked to determine whether it is for an arbitrator or a court of law to decide if an agreement to arbitrate is unconscionable where the parties to the contract have assigned this "gateway" issue to the arbitrator for decision.

In Jackson, a slim 5-4 majority of the Supreme Court ruled that the answer depends on what part of the arbitration agreement is being challenged. According to the Court's decision, if the plaintiff challenges the entire arbitration agreement as unconscionable, the arbitrator is tasked with determining its enforceability. If the plaintiff challenges the specific contractual provision delegating responsibility to an arbitrator, however, the court should determine whether the provision is enforceable.

The plaintiff in Jackson sued his former employer for employment discrimination in Nevada district court. When the company sought to compel arbitration under the terms of an arbitration agreement, the plaintiff argued that the agreement he signed was unenforceable because it was unconscionable under Nevada contract law.

Because the plaintiff in Jackson challenged the arbitration agreement as a whole, the Court ruled, the arbitrator retained authority to resolve challenges to the validity of the entire agreement. "[U]nless Jackson challenged the delegation provision specifically, we must treat it as valid... and must enforce it under [the Federal Arbitration Act] leaving any challenge to the validity of the Agreement as a whole for the arbitrator," Justice Scalia wrote on behalf of the majority, which included Chief Justice Roberts and Justices Kennedy, Thomas and Alito.

Though a narrow and technical ruling, the practical effect of the Jackson decision is that it will likely be more difficult for litigants to successfully challenge the enforceability of a delegation clause than the agreement as a whole.

Although the Supreme Court appears supportive of arbitration agreements in the employment law context, the Arbitration Fairness Act (H.R. 1020/S 931) currently pending in Congress would bar mandatory pre-dispute arbitration agreements in employment and other contexts. The bill also would declare that the validity or enforceability of an agreement to arbitrate shall be determined by a court, under federal law, rather than an arbitrator.

Vincent A. Cino is a partner in the Morristown, N.J., office of Jackson Lewis LLP. He is the firm's National Director of Litigation.

Vincent Cino

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