Corporate Governance

Court says: Don't Enter Here

By Susan Weiswasser

The Supreme Court has been pretty tough on plaintiffs lately. In Rent-a-Center, West, Inc. v. Jackson, the Court held that federal courts cannot hear a party's challenge to the enforceability of an arbitration agreement unless the party specifically challenges the arbitrator's power to hear that dispute.

In this particular case, Jackson, a Rent-a-Center employee, filed an employment discrimination suit in federal court. Rent-a-Center sought to stay the case based on an arbitration clause in the employment contract that included the agreement that the arbitrator would determine the enforceability of the contract. Jackson claimed the contract was unenforceable as unconscionable under state law and that under the Federal Arbitration Act a federal court has the power to determine the threshold question of unconscionability. The district court dismissed Jackson's claim and compelled arbitration but the Ninth Circuit reversed, agreeing with Jackson that such a "threshold question . . . is for the court" and not the arbitrator.

The Supreme Court reversed stating that "[i]f a party challenges the validity under [FAA] §2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement under [FAA] §4." Jackson's argument failed, however, because he "challenged only the validity of the contract as a whole."

According to the dissenting opinion, by Justice Stevens; a press release from Public Citizen, co-counsel in the case; and other commentators, the decision will create nearly insurmountable hurdles for individuals attempting to challenge unconscionable arbitration clauses drawn up by corporations for whom they work or do business with. The Arbitration Fairness Act, which, among other things, bans certain pre-dispute arbitration agreements and expressly grants power to federal courts to determine the enforceability of most arbitration agreements, has lingered in Congress for several years.

Full post as published by PomTalk on July 01, 2010 (boomark / email).