In a 5-4 decision released this morning in Rent-A-Center, West, Inc. v. Jackson (download here), the U.S. Supreme Court rejected a challenge to an arbitration agreement that purported to address all matters arising out of an employment dispute.
This decision isn’t the easiest to digest. First, understand that arbitration provisions governed by federal law have been — overall — blessed by the court. The court in Rent-A-Center, had to address a different question — can the parties agree to arbitrate "gateway" or threshold questions. In other words, can the parties agree that an arbitrator — rather than the court — is to decision issues like "unconscionability". The court refers to this as a "delegation" provision.
The court said that some challenges will still be allowed to proceed to court:
Thus, in an employment contract many elements of alleged unconscionability applicable to the entire contract (outrageously low wages, for example) would not affect the agreement to arbitrate alone. But even where that is not the case…we nonetheless require the basis of challenge to be directed specifically to the agreement to arbitrate before the court will intervene.
The court concludes that the provision here is fine but that in any event, it was not properly preserved below. As the court said, "The District Court correctly concluded that Jackson challenged only the validity of the contract as a whole. Nowhere in his opposition to Rent-A-Center’s motion to compel arbitration did he even mention the delegation provision."
There is a fairly vigorous dissent by Justice Stevens in which he states that the subject matter of the agreement should make a difference in the court’s analysis: "Its breezy assertion that the subject matter of the contract at issue—in this case, an arbitration agreement and nothing more—“makes no difference,” is simply wrong."
What does this mean for employers? It means that if you have an arbitration agreement or arbitration provisions, they should be reviewed by counsel yet again to ensure maximum enforceability. That’s not to say that all challenges to an arbitration provision will be defeated, but the court’s decision today just made those challenges harder still.