Consumer Law

Supreme Court Decides Rent-a-Center v. Jackson: Companies Can Delegate Unconscionability Challenges to the Arbitrator

By Deepak Gupta

A divided Supreme Court today dealt a major blow to consumers and employees seeking to challenge arbitration agreements on the ground that they are unfair or unconscionable. Public Citizen was co-counsel in the case, Rent-a-Center v. Jackson, and will be spearheading efforts in Congress to curtail its effects.

In a 5-4 decision by Justice Scalia, the Court held that if a company?s arbitration agreement includes a clause delegating fairness challenges to the arbitrator, a court must enforce that agreement and send the matter to arbitration. The Court's decision arose out of an employment discrimination claim brought by Antonio Jackson, an African-American Nevada man, against his former employer. When Mr. Jackson sued, the company invoked its arbitration agreement and claimed that, under the agreement, any challenges to the agreement had to be decided by the arbitrator.

Until today?s Supreme Court decision, consumers and employees had the right, under Section 2 of the Federal Arbitration Act, to go to court and ask a judge to find an arbitration agreement unconscionable or unfair and therefore unenforceable. Although most arbitration agreements are enforceable, court review weeded out the very worst abuses?like imposing exorbitant fees, forcing consumers or employees to travel great distances to arbitrate, or allowing a corporation to pick an arbitrator that is clearly biased in its favor.

Today?s Supreme Court decision will leave many challenges to the fairness of a corporate arbitration system entirely in the hands of arbitrators themselves. Nothing will stop companies from inserting clauses like the kind approved by today?s decision into standard-form arbitration agreements. Companies would then be free to impose one-sided terms or select clearly biased arbitrators with close ties to the company, secure in the knowledge that any challenge to the fairness of arbitration will be decided by the arbitrator whose very authority comes from the challenged arbitration agreement.

In a stinging dissent, Justice Stevens pointed out that neither party had urged the rule adopted by the Court and characterized the Court?s reasoning as ?fantastic.?

Today?s decision will spur efforts in Congress to pass the Arbitration Fairness Act (H.R. 1020, S. 931), a measure that would ensure that any decision to arbitrate in a consumer, employment, or franchise dispute is made voluntarily and after a dispute has arisen, so that corporations cannot take advantage of their unfair bargaining power to force individuals into arbitration.

Public Citizen?s co-counsel in the case were the Hardy Law Group of Reno, Nevada, and Public Justice of Washington, D.C. Oral argument was presented by Ian Silverberg of the Hardy Law Group.

Full post as published by CL&P Blog on June 21, 2010 (boomark / email).