Supreme Court Issues Ruling On Challenging Fairness of Arbitration Clause
Ruling in favor of the appellant, the Supreme Court established a standard for challenging the fairness of arbitration clauses in court. See Rent-A-Center, West v. Jackson, 2010 WL 2471058
(2010). Through a 5-4 majority, the court in Rent-A-Center, West v. Jackson held that if a party challenges the validity of an entire agreement, then the validity question, as per the language of the contract, may be decided by an arbitrator. See Id. If the challenge is specific to the arbitration provision, and not the entire agreement, then a court may have jurisdiction to decide the challenge. See Id.
In 2004, Jackson entered into an employment contract with Rent-A-Center that included an arbitration provision which specifically precluded Jackson from pursuing any claim in court. Id. The Agreement provided for arbitration of all “past, present or future disputes arising out of Jackson's employment with Rent-A-Center.” Id. Further, it also provided that an “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.” Id. Included in this agreement was the authority to arbitrate “any claim that all or any part of this Agreement is void or voidable.” Id. In 2007, Jackson filed a lawsuit against the defendant in federal district court. Id. The defendant filed a motion to dismiss the claim on the grounds that the contract clearly and unambiguously provided for arbitration of the claim. Id. Jackson argued that the arbitration agreement was procedurally and substantively unconscionable and that the enforceability of such an agreement was for a court to decide. Id.
The arbitration provision of the employment agreement signed by the parties had two parts. Id. The first part required that any dispute arising out of Jackson's employment was to be settled by arbitration. Id. The second part stated that any challenge as to the validity of the arbitration provision was also to be settled by an arbitrator. Id. The Court held that if Jackson had only challenged the second part- the validity of arbitration provision- then a court may have had jurisdiction. See Id. Since Jackson challenged the entire agreement as being unconscionable, and the contract specifically stated that a challenge of this nature was to go to arbitration, then the issue of unconscionability of the entire agreement was to be determined by an arbitrator. See Id.
Informational Purposes Only: The content of this writing was prepared by Tamari & Blumenthal, LLC for informational purposes only. The content of this writing is not intended to constitute and does not constitute legal advice. Reading the content of this writing or communicating with our office staff or attorneys by telephone, fax or e-mail does not make you a client of Tamari & Blumenthal, LLC. To become a client, you must sign and return our governing engagement agreement. Persons reading the content of this writing should not act upon this information without contacting and speaking with an attorney. Do not issue or provide us with confidential information until an attorney-client relationship has been formally established with our firm.
