Supreme Court Permits Arbitrator To Decide Whether Arbitration Agreement Is Enforceable

One issue that often arises in litigation over arbitration agreements is “Who gets to decide if the agreement to arbitrate is valid?” This is usually a “gateway issue” for the courts to decide under both the federal and California arbitration statutes. However, sometimes the parties specifically agree that the arbitrator can decide issues of contract validity and enforceability, in order to ensure that their entire dispute is resolved in arbitration.

 In Rent-A-Center West, Inc. v. Jackson issued June 21, 2010, the U.S. Supreme Court decided that a party wishing to challenge such a provision delegating “gateway issues” to the arbitrator must do so by attacking the legality of the “delegation provision” itself and not the parties’ entire agreement. The delegation clause in that case stated that “The Arbitrator, and not any federal, state, or local agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.” An employee, Antonio Jackson, challenged the agreement “as a whole” because it required him to split the costs of arbitration and provided for only limited discovery.  But since he did not challenge the legality or enforceability of the “delegation clause,” the issue of the contract’s enforcement was referred to the arbitrator instead.

This is another decision in a recent line of cases favoring the enforcement of arbitration agreements under the Federal Arbitration Act (FAA). Parties who wish to maximize the chances that their arbitration agreements will be enforced are wise to consider reference to the FAA’s governing law and procedures, and a “delegation clause” such as the one in Jackson, in their agreements. Although such clauses can still be challenged on the grounds that they were fraudulently obtained or are otherwise somehow “unconscionable” in and of themselves, the Jackson case provides support for employers who are comfortable resolving such enforcement issues in the arbitral forum.

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