Today, in a 5-4 opinion, the U.S. Supreme Court outlined a new rule that employers must consider in disputes over the validity of arbitration agreements. More specifically, the Court had to determine whether under the Federal Arbitration Act, an arbitrator or a court has the authority to determine whether an arbitration agreement is enforceable, and the Court’s answer was both, depending on the circumstances.
In this case, Rent-a-Center required Antonio Jackson to sign as a condition of his employment an arbitration agreement that prohibited him from pursuing employment claims in court. (They would instead be subject to arbitration.) Later, he filed an employment discrimination suit in district court again Rent-A-Center, and the company asked the court to dismiss the proceedings and compel arbitration. The district court did so, but the Ninth U.S. Circuit Court of Appeals reversed on the question of whether a court or an arbitrator had the authority to decide whether an arbitration agreement is enforceable.
The arbitration agreement that Jackson signed had two different provisions:
- a provision that provided for arbitration of all “past, present or future” disputes that arose out of his employment with Rent-A-Center; and
- a delegation provision that provided that an arbitrator would have the “exclusive authority to resolve any dispute” related to the enforceability of the arbitration agreement.
The Supreme Court determined that when a party challenges the validity of the precise agreement to arbitrate (in this case, the delegation provision), a court will consider the challenge. However, when a party challenges the arbitration agreement as a whole and doesn’t specifically challenge the delegation provision, the arbitrator will decide the enforceability of the agreement. Therefore, since Jackson challenged the arbitration agreement as a whole, the Court determined that the arbitrator was the one who would determine the validity of the agreement.
Arbitration is one type of alternative dispute resolution that has continued to become more popular. There are a number of reasons employers might favor arbitration, including reduced litigation costs, faster results, better predictability, and greater privacy. However, as illustrated by this case, an arbitration agreement doesn’t guarantee that an employer won’t still end up in court.
To keep up with the latest U.S. Supreme Court decisions, subscribe to your state’s Employment Law Letter.