Ninth Circuit Has Interesting Ruling on Unconscionability

The Daily Labor Report states:

“Court Must Decide Unconscionability, Not Arbitrator, Ninth Circuit Rules 2-1

A former account manager for a rent-to-own company in Nevada is entitled to have a court decide whether the arbitration agreement he signed as a condition of employment is unconscionable under state contract law, even though the agreement specifies that an arbitrator would decide any enforceability issues, a split panel of the U.S. Court of Appeals for the Ninth Circuit ruled Sept. 9 (Jackson v. Rent-A-Center West Inc., 9th Cir., No. 07-16164, 9/9/09). When “a party challenges an arbitration agreement as unconscionable, and thus asserts that he could not meaningfully assent to the agreement, the threshold question of unconscionability is for the court,” Judge Sidney R. Thomas wrote for the panel majority. He found that when an arbitration agreement delegates the question of its validity to the arbitrator, “a dispute as to whether the agreement to arbitrate arbitrability is itself enforceable is nonetheless for the court to decide as a threshold matter.”

The district court correctly found that the provision calling for Rent-A-Center West Inc. and Antonio Jackson to split equally the arbitration costs is not substantively unconscionable, Thomas said. However, he found that the district court on remand must address Jackson’s additional arguments that the arbitration agreement’s coverage and discovery provisions unfairly favor the company and make the agreement substantively unconscionable.
Judge Thomas G. Nelson joined in the majority opinion. Judge Cynthia Holcomb Hall dissented, asserting that “the question of the arbitration agreement’s validity should have gone to the arbitrator, as the parties ‘clearly and unmistakably provide[d]’ in their agreement.”
The agreement in this case is “more favorable to the employee than most this court sees” and the “allegations of unconscionability are also vaguer” than most, Hall said. She asserted that “to the extent the district court has a role to play here, it should certainly be a more limited one than the majority envisions, perhaps permitting courts to remain attuned to ‘well-supported’ claims of unconscionability or the potential that arbitration might be illusory, while still resolving ‘any doubts’ as to what the parties agreed in favor of arbitration.”

Jackson Alleged Race Discrimination, Retaliation
Jackson, who is African American, started working for Rent-A-Center in June 2004 as an account manager in Washoe County, Nev. According to his complaint, the company repeatedly denied him promotions and gave the positions to non-African Americans with less seniority. Jackson said he repeatedly complained to the corporate office and the human resources department and filled out three discrimination complaints. He alleged that Rent-A-Center retaliated against him by suspending him, transferring him to a less desirable location, and then firing him without cause two months after the company finally promoted him.
Jackson sued Rent-A-Center in February 2007, bringing race discrimination and retaliation claims under the Civil Rights Act of 1866 (42 U.S.C. § 1981). The company moved to compel arbitration under an agreement Jackson signed as a condition of employment that specifically covers discrimination claims. Jackson argued that the arbitration agreement is unenforceable because it is substantively and procedurally unconscionable.
Rent-A-Center cited the agreement’s provision that
“[t]he Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.”
The U.S. District Court for the District of Nevada granted the motion to compel arbitration and dismissed the case, finding that the agreement clearly and unmistakably gives the arbitrator the authority to decide whether the agreement is enforceable. The district court found that the fee-splitting provision was not substantively unconscionable, but the court did not address Jackson’s other allegations regarding unconscionability.
Judge Hall dissented, asserting that “the question of the arbitration agreement’s validity should have gone to the arbitrator, as the parties ‘clearly and unmistakably provide[d]’ in their agreement.” ”

It seems to me that if the parties clearly and unmistakably indicated that unconscionability should be decided by the arbitrator, then this decision is incorrect.

4 thoughts on “Ninth Circuit Has Interesting Ruling on Unconscionability”

  1. But if the arbitrator had decided that the arbitration decision was void or voidable for unconscionability, then the arbitrator would have also ruled, by implication, that his jurisdiction given to him by the void or voidable contract was gone.

  2. Interesting case and a good analysis!

    However, it seems to me that the decision was correct, even in the face of this explicit clause in the agreement.

    The problem we face with adhesion arrangements (and making the arbitration clause a condition of employment clearly puts it into that category), is that they are not really contracts at all, and as much as we are tempted to use the normal rules of contract to adhesion arrangements we need to restrict that bad habit to instances where that makes obvious sense.

    I am all for following the principles of Severability and Kompetenz-Kompetenz, but not in adhesion arrangements. Leaving the arbitrator to decide whether this agreement is procedurally and substantively unconscionable is not a good idea, as a ruling in favor of the employer might be suspect as being in line with his own interests. And such an award is final and cannot be subjected to appellate review under our laws.

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