The U.S. Supreme Court has been deciding cases regarding arbitration at (for them) a furious pace recently, and the latest decision (Rent-A-Center West, Inc. v. Jackson, 2010 WL 2471058 (June 21, 2010)) reconfirms the Court’s continued strong support for enforcing arbitration agreements as written, even where this deprives the courts of any significant role in determining threshold questions of arbitrability.
The Rent-A-Center decision is complex, and well illustrates the very fine distinctions being made in the U.S. law of arbitration, but which have the net effect of strengthening the arbitrators’ role at the expense of the courts. The underlying broader issue is whether it is for the arbitrators or the courts to decide questions going to whether there is in fact a valid contract and a valid agreement to arbitrate (so called “arbitrability” or “gateway” questions). Under the longstanding Prima Paint rule, a challenge to the validity of the entire contract (including, but not specifically directed at, the arbitration clause) is to be decided by the arbitrators. But a challenge specifically to the validity of the agreement to arbitrate, or as to whether that arbitration agreement covers a particular dispute, is normally for the courts to determine. This, however, can be altered by the parties if they “clearly and unmistakably” demonstrate their intent to delegate such gateway questions to the arbitrators.
In Rent-A-Center, a former employee (Jackson) sued his former employer (Rent-A-Center) for employment discrimination. Rent-A-Center sought dismissal in favor of arbitration, based on an arbitration agreement signed by Jackson at the outset of his employment. That agreement (which covered only arbitration; other employment terms were in other documents) not only specifically provided that discrimination claims were to be arbitrated, but contained a separate “delegation” sentence giving the arbitrator “exclusive authority to resolve any dispute relating to the . . . enforceability . . . of this Agreement.” Jackson countered by asserting that the agreement to arbitrate was unconscionable and thus unenforceable.
The Supreme Court resolved the dispute in favor of arbitration by, in effect, extending the Prima Paint rule. It held, by a 5-4 margin, that since Jackson’s challenge to the enforceability of the arbitration agreement went to the entire arbitration agreement, and not specifically to the “delegation” sentence, then it was up to the arbitrator to determine the unconscionability challenge to the enforceability of the arbitration agreement. It was not a matter for the court to decide. This extension of the Prima Paint concept thus appears to further narrow the situations where the court gets to determine “gateway” issues, at least if the arbitration agreement is worded so as to delegate gateway issues to the arbitrators.
The lesson for construction practitioners is thus that the particular wording of the arbitration clause, and how, if at all, it delegates the arbitrators to determine arbitrability issues, is more important than ever. The specific wording, if deemed “clear and unmistakable,” may indeed immunize the parties from any scrutiny by the court of all but the narrowest and specific of challenges to the clause’s enforceability.
Andrew D. Ness