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When Antonio Jackson was hired by Rent-A-Center as an account manager, his employment contract included a provision which specifically delegated to an arbitrator, “and not any federal, state, or local court or agency,” the exclusive authority “to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement.” That authority, the clause continued, extended to “any claim that all or any part of this Agreement is void or voidable.”

Jackson is African American, and he repeatedly sought promotions at the company.  Each time one was available, he alleges, a less-senior non-African American was promoted instead.  Jackson complained to store managers and later to Corporate's HR department.   Ultimately, Jackson was promoted ... and then two months later, terminated without cause. Jackson sued Rent-A-Center in federal district court in 2007, alleging that he had been the victim of racial discrimination and retaliation.

Rent-A-Center filed a motion to dismiss, saying this was supposed to go to arbitration, with Jackson arguing in response that the arbitration agreement was so unconscionable (i.e., fundamentally unfair) that it should be up to a judge, not the arbitrator, to decide whether the agreement to arbitrate could be enforced.  Jackson argued, basically, that in light of the parties’ unequal bargaining power and the fact that the agreement to arbitrate was presented to him as a non-negotiable condition of his employment, he lacked any meaningful opportunity to modify the terms of the Agreement and therefore did not meaningfully agree to signing away his right of access to the courts.  

Why does this matter?  As the SEIU and other pro-worker organizations put it in an amicus brief:

Particularly in the current distressed economic climate, low-wage and other vulnerable American workers have no choice about whether to reject or to negotiate over the terms imposed by such agreements, and often do not understand the consequences of what they have agreed to or what rights they may thereby have waived. In amici’s experience, it is all too common for non-unionized employers to take advantage of their grossly superior bargaining power by including one-sided terms in arbitration agreements that impose daunting and sometimes insurmountable barriers to the effective enforcement of the anti-discrimination, minimum wage, and workplace safety protections guaranteed by federal and state law.

In addition, it has been argued, "corporate employers like Rent-A-Center are repeat players in the arbitration system and their continued patronage keeps arbitrators in profitable business, which means that arbitrators may well be predisposed in the employers' favor."

In a 5-4 decision today authored by Justice Scalia -- and stop me if you've heard this one before, or if you need the list of who the five are -- the Supreme Court reversed the decision of the Ninth Circuit and held basically, that a claim that an entire arbitration agreement is invalid won't be heard by a neutral judge unless the plaintiff specifically challenges the unfairness of the particular sentences that delegate such claims to the arbitrator:

There are two types of validity challenges under §2: “One type challenges specifically the validity of the agreement to arbitrate,” and “[t]he other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid.”

... [I]n an employment contract many elements of alleged unconscionability applicable to the entire contract (outrageously low wages, for example) would not affect the agreement to arbitrate alone. But even where that is not the case ... we nonetheless require the basis of challenge to be directed specifically to the agreement to arbitrate before the court will intervene.

In other words, because Jackson didn't specifically contend that the arbitration clause was invalid, the whole thing goes to an arbitrator:

It was procedurally unconscionable, [Jackson] argued, because it “was imposed as a condition of employment and was non-negotiable.”  But we need not consider that claim because none of Jackson’s substantive unconscionability challenges was specific to the delegation provision. First, he argued that the Agreement’s coverage was one sided in that it required arbitration of claims an employee was likely to bring—contract, tort, discrimination, and statutory claims—but did not require arbitration of claims Rent-A-Center was likely to bring—intellectual property, unfair competition, and trade secrets claims. This one-sided-coverage argument clearly did not go to the validity of the delegation provision.

... Jackson’s other two substantive unconscionability arguments assailed arbitration procedures called for by the contract—the fee-splitting arrangement and the limitations on discovery—procedures that were to be used during arbitration under both the agreement to arbitrate employment-related disputes and the delegation provision. It may be that had Jackson challenged the delegation provision by arguing that these common procedures as applied to the delegation provision rendered that provision unconscionable, the challenge should have been considered by the court. To make such a claim based on the discovery procedures, Jackson would have had to argue that the limitation upon the number of depositions causes the arbitration of his claim that the Agreement is unenforceable to be unconscionable. That would be, of course, a much more difficult argument to sustain than the argument that the same limitation renders arbitration of his factbound employment-discrimination claim unconscionable. Likewise, the unfairness of the fee-splitting arrangement may be more difficult to establish for the arbitration of enforceability than for arbitration of more complex and fact-related aspects of the alleged employment discrimination. Jackson, however, did not make any arguments specific to the delegation provision; he argued that the fee-sharing and discovery procedures rendered the entire Agreement invalid.

Put in other words, this is basically saying that to challenge the "who decides" element of the agreement, a plaintiff has to have a specific argument about what's wrong with having the arbitrator decide that element.  In other words, even if the plaintiff feels coerced into an unfair agreement to take disputes into an unequal forum, you have to go to arbitration to get out of arbitration unless you can show the "who decides" question is stacked against you specifically.

Justice Stevens, for the four dissenters:

We might have resolved this case by simply applying the First Options rule: Does the arbitration agreement at issue “clearly and unmistakably” evince petitioner’s and respondent’s intent to submit questions of arbitrability to the arbitrator? The answer to that question is no. Respondent’s claim that the arbitration agreement is unconscionable undermines any suggestion that he “clearly” and “unmistakably” assented to submit questions of arbitrability to the arbitrator. See Restatement (Second) of Contracts §208, Comment d (1979) (“[G]ross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms”)....

In other words, when a party raises a good-faith validity challenge to the arbitration agreement itself, that issue must be resolved before a court can say that he clearly and unmistakably intended to arbitrate that very validity question. This case well illustrates the point: If respondent’s unconscionability claim is correct—i.e., if the terms of the agreement are so one-sided and the process of its making so unfair—it would contravene the existence of clear and unmistakable assent to arbitrate the very question petitioner now seeks to arbitrate. Accordingly, it is necessary for the court to resolve the merits of respondent’s unconscionability claim in order to decide whether the parties have a valid arbitration agreement under §2.Otherwise, that section’s preservation of revocation issues for the Court would be meaningless.

As Slate's Dahlia Lithwick noted after oral argument:

The rap on mandatory arbitration clauses is that, in the interest of speed and efficiency, they replace the truth-seeking function of courts with the truthiness-seeking function of paid arbitrators. In addition to structural incentives for arbitrators to favor the employer and wonky fee-sharing and secrecy rules, arbitration provides for limited review and unequal bargaining power between employers and employees (who are generally told to take it or leave it).

And she points us to part of the oral argument in which Justice Ginsberg and Rent-A-Center's attorney make clear that with today's decision, we're all pretty much screwed:

JUSTICE GINSBERG: [U]nderlying your whole case I think is the notion that this is an adhesion contract; it's a take-it-or-leave-it contract,very common in consumer, credit card agreements, in employment contracts, that one party has no say except to sign or not to sign. Are all those contracts subject to the unconscionability argument that you’re making or only some of them? And if only some, which ones?

MR. SILVERBERG: I would suggest, Your Honor, that they all are subject to that.

A 2007 study found that more than three-quarters of contracts between corporations and consumers contained mandatory arbitration provisions, and they're not there because corporations wanted to help you out.  Based on today's decision, if the corporation didn't (literally) put a gun to your head or get you drunk, and if it's really your signature on the dotted line ... welcome to arbitration.   Goodbye, courts.  As the Constitutional Accountability Center's Elizabeth Wydra noted,

[D]on't look to Justice Scalia for any sympathy if you want access to justice and find the terms of the mandatory arbitration agreement unfair. In his view, you haven't been coerced into anything-you're just "a stupid person who voluntarily signs an unconscionable contract." According to Justice Scalia, the law may in some circumstances "protect you because you are stupid, but you haven't been coerced."

This is an astonishing statement given the broad swath of Americans who are swept up into the category of people who have had no choice but to sign mandatory arbitration agreements that are lop-sided in favor of corporate entities and fundamentally unfair. Maybe you signed that agreement in the medical office, even though it seemed wrong, because you had to get in to see the doctor to have your sick child examined and didn't want to make a fuss. Maybe you signed that mandatory arbitration agreement, even though it seemed unjust, when you took that job because you had no choice and you needed the work to put food on the table for your family. But you certainly didn't sign up for forced arbitration because you're "stupid."

If ever there were an oral argument that drove home the need to have a Supreme Court that understands, as President Obama and others have put it lately, how the law affects "ordinary Americans" -- this was it.

Originally posted to Daily Kos on Mon Jun 21, 2010 at 01:46 PM PDT.

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