Chandler Culwell – The rule of arbitration clauses, a tenet of contract law, is often taught to today’s law students by way of the Supreme Court’s holding in Rent-A-Center v. Jackson: if you challenge the enforceability of a contract that contains an arbitration clause, the challenge goes to arbitration, but if you challenge the enforceability of the arbitration clause itself, the challenge goes to court. However, what happens if the contract itself provides that a challenge to the arbitration clause may be decided by way of arbitration? This is the question in arbitration jurisprudence most recently clarified by the Supreme Court a few weeks ago in January 2019, in the case of Schein v. Archer & White Sales, Inc.
In Rent-A-Center, a 2010 Supreme Court case, Justice Scalia wrote for the majority, reversing a Ninth Circuit denial of a motion to compel arbitration. Jackson, a former employee of Rent-A-Center, had filed an employment discrimination suit against Rent-A-Center. The company then filed a motion under the Federal Arbitration Act (FAA) to stay proceedings and compel arbitration, pursuant to the arbitration agreement that Jackson had signed as a condition to his employment. The document in question required that Jackson agree to arbitrate any “past, present, or future disputes” arising from his relationship with Rent-A-Center, including any claim that the arbitration agreement itself was void or voidable. Jackson opposed the motion on grounds that “it was unconscionable under Nevada law,” but the District Court granted Rent-A-Center’s motion. The Ninth Circuit reversed.
The Supreme Court’s holding fell squarely within the strictures of the FAA, which itself provides that a dispute arising out of a contract with an agreement to arbitrate must be submitted to arbitration, but a dispute specifically as to the arbitration provision must go to the district court. The Court noted that the language did provide that the arbitrator would have “exclusive authority” to resolve disputes regarding the enforceability of the arbitration agreement, “courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” However, the underlying contract itself was an arbitration agreement. Because the dispute, therefore, arose out of the validity of the contract as a whole, the Court found that the dispute should be submitted to arbitration.
In January, the Supreme Court heard the case of petitioner Henry Schein, who had been sued by Archer & White Sales on grounds of antitrust violations. The relevant contract between the parties provided that disputes arising under or in relation to the agreement, except for those seeking injunctive relief, should be resolved by binding arbitration. Schein asked the court to refer the dispute to arbitration, and Archer & White objected, claiming that the dispute was not subject to arbitration because they were seeking injunctive relief. The Court was then faced with the question of who was to decide whether the dispute was subject to arbitration.
The Court enunciated that, up until this point, when a contract has delegated the question of application of the arbitration provision to an arbitrator, some courts will just decide the question themselves, if it appears to them that “the argument that the arbitration agreement applies to the particular dispute is ‘wholly groundless.’” The Court ultimately found that this “wholly groundless” exception was a stretch of the FAA, and to continue to apply it here and bypass express contractual language would be a form of judicial legislation. “When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.” The FAA provides that the contract be interpreted as written, and here, the arbitration provision in the contract provided that all disputes relating to the agreement were to be resolved by arbitration. This is understood to include a threshold dispute as to whether a particular issue is arbitrable – “a court possesses no power to decide the arbitrability issue…even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.”
Arbitration provisions are often criticized for their unfairness, particularly in application to contracts between a company and its employees, who may not be as knowledgeable about the rights they are signing away until it is too late. The arbitration process is very private, and the arbitrator is often paid by the employer itself – this privacy and power discrepancy between the individual and the company has the potential to imbue the employer with undue advantage, which can be especially problematic where the individual may be attempting to bring claims regarding harassment in the workplace. The last Congress considered the Arbitration Fairness Act, designed to render arbitration provisions unenforceable where they would require arbitration for claims over consumer disputes or civil rights disputes, among others. However, this bill has not yet passed the Senate Judiciary Committee, and this most recent decision strongly affirms the power of the arbitration clause already enunciated by the Court in Rent-A-Center. For now, arbitration provisions within employment contracts are here to stay.
