Strengthening arbitration agreements

published in Oklahoma Employment Law Letter | September 1, 2010

By Charlie Plumb

In our June 2009 issue, we discussed the increasing trend of employers turning to preemployment arbitration agreements in an effort to avoid risky jury trials. Our June 2010 issue covered two recent cases applicable to Oklahoma employers with mandatory employment arbitration programs in place. This summer, the U.S. Supreme Court weighed in on the question of whether courts or arbitrators should decide the enforceability of employment arbitration agreements.

Rent-A-Center’s employment agreement

When Antonio Jackson began working for Rent-A-Center, he was required to sign a Mutual Agreement to Arbitrate Claims. The arbitration agreement prevented him from pursuing “past, present or future” employment disputes against Rent-A-Center in the courts and specifically required “claims for discrimination” and “claims for violation of any federal law” to be resolved through mandatory arbitration.

The agreement also required Jackson and Rent-A-Center to split the arbitration costs and limited the amount of discovery (fact-finding) an employee could conduct when arbitrating an employment dispute. Finally, the agreement stated that it would be the arbitrator who had “exclusive authority to resolve any dispute relating to the interpretation, applicability or enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement was void or voidable.”

Fighting the arbitration agreement

After leaving Rent-A-Center, Jackson filed an employment discrimination lawsuit against his former employer in federal court. Citing the arbitration agreement, Rent-A-Center asked the court to dismiss the lawsuit and require Jackson to have his discrimination claims decided through arbitration.

Jackson fought Rent-A-Center’s effort to force arbitration and kill his discrimination lawsuit. He complained that the arbitration agreement shouldn’t be enforced because it was unconscionable. According to him, the agreement was unconscionable because it was nonnegotiable and a condition of his employment. He also attacked the agreement based on its requirement that he pay half the arbitration fees and because his ability to conduct discovery in the arbitration proceeding would be significantly more limited than what he could uncover in a federal discrimination lawsuit.

The arbitrator is the decider

After the trial court and the court of appeals rendered decisions in the case, the question of whether Jackson’s federal discrimination lawsuit should be moved to an arbitration proceeding landed in the Supreme Court’s lap. Observing that arbitration agreements should be treated the same as other contracts, the Court paid particular attention to the language of Rent-A-Center’s arbitration agreement.

The Court stated that it is the arbitrator who has the authority to decide interpretation, applicability, or enforceability of an agreement. In the Court’s view, it was clear and unmistakable that Jackson and Rent-A-Center had agreed that the arbitrator would rule on whether the arbitration agreement was enforceable or unconscionable, and a federal court shouldn’t interfere in the process. For that reason, the Court referred Jackson’s argument that the arbitration agreement wasn’t enforceable to an arbitrator for a decision. Rent-A-Center West Inc. v. Jackson, 109 FEP Cases 897 (U.S. Sup. Court, 2010).

Check your own arbitration process

Any advantage of requiring employment disputes to go to arbitration rather than be resolved through a lawsuit is diminished if an angry employee can go into court and attempt to set aside the arbitration agreement. If your company has an employment arbitration program, or is considering putting one in place, make sure your arbitration agreement has strong language like Rent-A-Center’s. Its agreement plainly placed the authority to decide whether it was enforceable and whether the arbitration could go forward in the hands of the arbitrator rather than a state or federal court.