On Friday, the U.S. Supreme Court agreed to resolve whether a court or an arbitrator has jurisdiction to determine if an arbitration agreement is unconscionable, even when the parties to the contract have clearly and unmistakably given such authority to the arbitrator. In Rent-A-Center West, Inc. v. Jackson (No. 09-497), Antonio Jackson entered into an agreement with his employer, Rent-A-Center (RAC), in which both parties agreed to arbitrate claims arising out of the employment relationship. This agreement expressly stated that:

the 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.

Despite the terms of this agreement, Jackson filed a complaint in the United States District Court for the District of Nevada alleging race discrimination and retaliation. When RAC moved to dismiss Jackson’s complaint and compel arbitration, Jackson alleged that the agreement was procedurally and substantively unconscionable, and thus invalid and unenforceable. The court ultimately granted RAC’s motion to dismiss, finding that the agreement clearly and unmistakably provided the arbitrator with the exclusive authority to decide whether the arbitration agreement was enforceable, and in the alternative, holding that the agreement was not unconscionable. On appeal, (pdf) the Ninth Circuit Court of Appeals disagreed with the district court’s holding on the arbitrator’s authority, holding that, as a matter of law, the unconscionability determination is a matter for the court.

It is now up to the Supreme Court – which in recent years has favored arbitration as a dispute resolution method – to resolve the split in the circuits and decide whether these common contract terms are valid.