Employment Litigation Class Action Defense Appellate Practice Wage & Hour Laws ERISA Employee Leaves Traditional Labor Law Trade Secret Protecton

Unconscionability. The U.S. Supreme Court will hear arguments this spring in Jackson v. Rent-A-Center West, Inc., a case that presents an arcane, but important, issue about who decides the enforceability of a pre-dispute arbitration agreement when it is challenged as unconscionable — a court or the arbitrator?

Antonio Jackson signed such an agreement when he was hired as an account manager for Rent-A-Center. The form agreement contained a relatively uncommon provision giving the "arbitrator, and not any federal, state, or local court or agency," exclusive authority to resolve disputes relating to the interpretation, enforceability, or formation of the agreement to arbitrate.

The U.S. Supreme Court had ruled in 1995 that courts should not conclude that the parties to an arbitration agreement have agreed to have the arbitrator decide questions of arbitrability unless there is clear and unmistakable evidence that this was their intent. Apparently, Rent-ACenter wanted its agreement to constitute just such "unmistakable evidence." The Supreme Court's decisions have also developed the rule that a challenge to the validity of an entire contract providing for arbitration should be decided by the arbitrator, while a challenge that targets only the threshold enforceability or applicability of the arbitration provision must be decided by the courts.

When Jackson sued after being discharged, Rent-ACenter moved to dismiss the lawsuit based on the arbitration agreement. Jackson responded that the form agreement was procedurally and substantively unconscionable, asserting that it contained one-sided provisions on discovery and sharing of the arbitrator's fee, and had been presented to him as a non-negotiable condition of employment. The trial judge concluded that the agreement’s language "unmistakably" assigned the question of its enforceability to the arbitrator, and dismissed the lawsuit. A divided appellate panel held that Jackson’s contention that the agreement was unconscionable (and hence he could not have given meaningful assent) presented a threshold question for a court to decide, and reinstated the lawsuit.

The U.S. Supreme Court’s willingness to review the Ninth Circuit’s decision may well foretell that another 5-4 opinion will soon join the parade of "modern" cases favoring arbitration and strengthening the role of arbitrators.  Employee and consumer advocates would find such an outcome distressing because it would all but extinguish any prospect of keeping disputes out of arbitration on procedural grounds.

Third-Party Beneficiary. A recent unpublished opinion from the Michigan Court of Appeals, Lyddy v. Dow Chemical Co., decided an unusual issue about enforcing an arbitration agreement between employee and employer to require arbitration of the employee's claims against a third party. Lyddy worked for Gulf States, a subcontractor on a project at a Dow Chemical facility. After Lyddy was injured on the job, Gulf States terminated him at Dow’s request because he had committed an unsafe act. He then sued Gulf States and Dow, alleging that both had retaliated against him for filing a worker’s compensation claim and that Dow had tortiously interfered with his contractual relationship with Gulf States.

Lyddy had signed an arbitration agreement that appeared in Gulf States' employment application and employee handbook. The agreement broadly defined the scope of its arbitration clause — "all claims . . . arising out of or in any way related to" Lyddy's employment — to additionally include claims against any entity for whom Gulf States had done work at any time during his employment. Lyddy argued that this language, though plain enough, did not allow Dow to require him to arbitrate his claims against Dow, because the Michigan Arbitration Act authorizes enforcement only of a written arbitration provision covering arbitration of controversies between the actual parties to the written agreement.

The Court of Appeals disagreed. It did not see the Act’s wording as an obstacle to the enforcement of contractual arbitration clauses by intended third-party beneficiaries of those clauses — as Dow plainly was in this case.

In contrast, another recent unpublished opinion from the Michigan Court of Appeals, Riley v. Ennis, held that a Civil Rights Act claim against a management employee of the children's services agency that employed the plaintiff was not arbitable. The arbitration agreement in Riley covered only "any dispute with the Agency" concerning the plaintiff 's employment.

Noel D. Massie

Back to the Top