WASHINGTON (CN) – The Supreme Court on Monday questioned the fairness of arbitration agreements as it tried to pin down who should make the call on whether those agreements are valid: judges or arbitrators. Justice Ruth Bader Ginsburg called the clauses “take-it-or-leave-it” contracts, where “one party has no say except to sign or not to sign.”
The high court’s decision in Rent-A-Center v. Jackson could have widespread ramifications, as corporations increasingly require employees and consumers to agree to arbitrate disputes instead of taking them to court.
This was the case for Antonio Jackson, who signed an arbitration clause when he began working for Rent-A-Center West. He later sued the company in federal court in Nevada, alleging racial discrimination. But the district court steered the case to an arbitrator based on the four-page agreement Jackson had to sign to get the job.
Jackson appealed, claiming the agreement itself was “unconscionable,” or so one-sided that it was unreasonable and thus unenforceable. The 9th Circuit reversed on a 2-1 vote.
Rent-A-Center’s lawyer, Robert Friedman, told the Supreme Court Monday that the arbitrator “clearly and unmistakably … has exclusive authority” over not only Jackson’s racial bias claim, but also his challenge of the arbitration agreement.
Jackson’s attorney, Ian Silverberg, urged the justices to leave the door to the courts open, particularly when there’s an imbalance in bargaining power, such as when an individual takes on a large company.
Justices Ginsburg, Anthony Kennedy and Stephen Breyer suggested that an unconscionable arbitration agreement is akin to a contract signed through coercion or fraud. “The reason we don’t enforce unconscionable contracts,” Breyer explained, “is because … the victim had no free will.”
But Justice Antonin Scalia quickly lobbed Friedman a defense.
“I guess you could argue that on its face the agreement is so one-sided, so unconscionable, that one of the parties must have been coerced into signing it,” Scalia said.
“You could make that argument,” Friedman conceded.
“Has that argument been made here?” Scalia asked.
“No,” Friedman said.
“I didn’t think it had been made,” Scalia said, smiling.
Breyer, using a hypothetical contract-pusher named “Joe Banana,” asked Friedman to explain why an unconscionable arbitration agreement couldn’t be reviewed by a federal court, as a fraudulent or coerced contract could.
“It does not rise to the same level as something that’s fraudulent or something that is forced with a gun to your head,” Friedman answered.
Chief Justice John Roberts seemed to favor an all-or-none approach. “In for a penny, in for a pound,” he said. “If you agree to arbitrate, then it’s at least for the arbitrator to decide particular provisions, whether they are unconscionable.”
Jackson, and the consumer and civil rights groups supporting him, say a ruling for Rent-A-Center would disrupt meaningful access to courts. They say employees cannot be forced to arbitrate civil rights unless a court — not an arbitrator — finds the arbitration agreement valid.
Rent-A-Center and its supporters, including the U.S. Chamber of Commerce, say a ruling for the company would streamline the arbitration process. They also worry that a ruling for Jackson would open the floodgates to lawsuits challenging arbitration clauses.
“Kiss good-bye to arbitration,” Scalia said.