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Arbitrability Up to the Arbitrator

Antonio Jackson sued his employer for discrimination in federal district court in Nevada, but the court granted the employer’s motion to compel arbitration and dismissed the case.  The Ninth Circuit reversed in part, holding that the trial court was obligated to determine whether the arbitration agreement was unconscionable as Jackson claimed, rather than leaving that determination up to the arbitrator.  Yesterday, the U.S. Supreme Court, in a 5-4 ruling in Rent-a-Center, West, Inc. v. Jackson held that the district court was correct to enforce an arbitration clause that plainly granted the arbitrator exclusive authority to resolve any disputes about whether the arbitration agreement itself was enforceable.

No question that the arbitration agreement in this case clearly left the determination of arbitrability up to the arbitrator.  But Jackson claimed the arbitration agreement itself was a contract of adhesion, meaning he was compelled to sign it as a condition of employment, and that he had no appreciation of its meaning at the time.  He also claimed that the arbitration agreement was substantively unfair, and should therefore be unenforceable, because it required the parties to arbitrate claims that employees typically bring (e.g., his claim of discrimination), while allowing the parties access to court for claims that employers typically bring (intellectual property and unfair competition claims).  (I successfully challenged a similar arbitration clause on behalf of an employee in Abramson v. Juniper Networks, although that case arose in California state courts.)

Is it fair to bind the employee to a provision requiring that the enforceability of the arbitration agreement itself should be determined by the arbitrator, in the face of the employee’s claims that the entire contract is unconscionable and unenforceable?  The Supreme Court decided that the employee could be compelled to submit to the arbitrator’s determination of whether the arbitration agreement itself was valid.  What that means as a practical matter is that the employee may still be required to advance the substantial filing and hearing fee for the arbitration (which was another one of the employee’s challenges to the fairness of being required to arbitrate), and may even be required to present his entire case on the merits to the arbitrator, before ever receiving a determination from the arbitrator himself as to whether he entered into a valid agreement to arbitrate the dispute.  In addition, the arbitrator’s decision on that issue would not be reviewable by any court except on the very narrow grounds available for challenges to arbitration decisions on the merits.  So the Court’s decision either precludes the employee from obtaining any remedy at all for the claimed discrimination (if he cannot afford his share of the filing and hearing fees), or it may require him to arbitrate his claims before he can find out whether he was required to submit them to arbitration.

The dissent, written by the retiring Justice Stevens, called the majority’s reasoning “fantastic,” and Stevens did not mean that in a good way.  I am not going to labor through that reasoning here, but would only raise the question whether we should be comfortable in general with entrusting arbitrators with threshold questions in which the arbitrator himself has a vested interest in the outcome.  It seems to me that such a rule is bound to make people more distrustful of arbitration, and to lend fuel to efforts in Congress to abolish mandatory, pre-dispute arbitration agreements altogether in consumer cases.

(photo from Mises Institute website)

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