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Employment Law: Arbitrator Decides Enforceability of an Arbitration Agreement When a Party Challenges the Enforceability of the Agreement as a Whole

Written By:

Thomas Paschos

Thomas Paschos & Associates, P.C.

(Haddonfield, NJ)

In Rent-A-Center, West, Inc. v. Jackson, — S.Ct. —, 2010 WL 2471058 (June 21, 2010), Jackson filed an employment-discrimination suit against petitioner Rent-A-Center, his former employer, in a Nevada Federal District Court. Rent-A-Center filed a motion, under the Federal Arbitration Act (FAA), to dismiss or stay the proceedings and to compel arbitration based on the arbitration agreement (Agreement) Jackson signed as a condition of his employment. The Agreement provided for arbitration of all past, present or future disputes arising out of Jackson’s employment with Rent-A-Center, including claims for discrimination and claims for violation of any federal … law. It also provided that [t]he Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.

Jackson opposed Rent-A-Centers motion on the ground that the arbitration agreement was unconscionable. Rent-A-Center responded that Jackson’s unconscionability claim was not properly before the court because Jackson had expressly agreed that the arbitrator would have exclusive authority to resolve any dispute about the enforceability of the Agreement. It also disputed the merits of Jackson’s unconscionability claims.

The District Court granted Rent-A-Centers motion, holding that the agreement clearly and unmistakenly provides the arbitrator with the exclusive authority to decide whether the Agreement to Arbitrate is enforceable and that the question of arbitrability is for the arbitrator. The District Court also held that, even were it to decide the merits of the unconscionability challenge, the employee had not shown that the agreement was substantively unconscionable.

The Supreme Court reversed the Ninth Circuits judgment and held that under the FAA, where an agreement to arbitrate includes an agreement that the arbitrator will determine the enforceability of the agreement, if a party challenges specifically the enforceability of that particular agreement, the district court considers the challenge, but if a party challenges the enforceability of the agreement as a whole, the challenge is for the arbitrator.

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