New rule for deciding validity of agreements to arbitrate arbitration
on Jun 21, 2010 at 11:18 am
DISCLOSURE: Kevin Russell filed an amicus brief in support of the respondent in this case.
In Rent-A-Center, West, Inc. v. Jackson (No. 09-497), the Court established a new rule for determining who decides challenges to the validity of an agreement to arbitrate the validity of an arbitration agreement. The answer, the Court held, depends on what kind of challenge to the arbitration agreement is made. If the party resisting arbitration does so on grounds that go to the validity of the entire agreement, then the validity question goes to the arbitrator. But if the challenge is specific to the arbitration provision at issue in the case, then a court must decide that challenge. [Oral arguments in the case are previewed and recapped here and here.]
The question arose in this case because Rent-A-Center requires its employees to sign an arbitration agreement as a condition of their employment. The agreement has two parts. The first requires that all disputes arising out of the employment relationship be settled by arbitration. The second part requires that any challenge to the validity of the arbitration agreement also be settled by an arbitrator. In this case, the employee brought an employment discrimination claim against his employer, who insisted that the claim be resolved through arbitration, pointing to the first part. The employee then challenged the validity of the arbitration agreement, asserting it was unconscionable. Pointing to the second part of the arbitration agreement, the employer argued that the validity question also had to be submitted to arbitration. The employee countered that because his unconscionability challenge went to both parts of the arbitration agreement, a court had to decide whether the agreement to arbitrate validity was, itself, valid before enforcing it.
By a vote of five to four, in a decision by Justice Scalia that relied principally on a 1967 decision called Prima Paint Corp. v. Flood & Concklin Mfg., Co., the Court held that if the employee had raised a challenge that was specific to the second part alone – that is, to the agreement to arbitrate validity – then a court would have had to decide the challenge. But because the employee’s grounds for unconscionability applied equally to the initial agreement to arbitrate all employment disputes, the general unconscionability question should be decided by an arbitrator.
The dissent, written by Justice Stevens, characterized today’s decision as an unwarranted extension of Prima Paint, which was, in his view, likely wrong to begin with.
