The U.S. Supreme Court’s recent, 5-4, domestic-arbitration decision in Rent-a-Center v. Jackson has made it far more difficult to attack arbitration clauses and has given arbitrators more secure authority. Jackson’s attack — that his agreement to arbitrate disputes with his employer, Rent-a-Center, was unconscionable — was dismissed by applying the long-settled “severability” doctrine in a new way: to a single arbitrability clause within the arbitration agreement. From now on, parties trying to avoid arbitration will have to show the unconscionability of each clause in an arbitration agreement. 

Although the case is domestic, the implications for international arbitration are the same: because all major international arbitration rules delegate decisions on the “existence or validity of the arbitration agreement” to the arbitrator, international arbitration agreements, too, have become even more bulletproof. 

Employment Agreement Delegated Power to Decide Validity to Arbitrator
Jackson’s four-page, stand-alone “Mutual Agreement to Arbitrate Claims” with Rent-a-Center was a condition of employment. As read by the Supreme Court, the Mutual Agreement contained two separate “agreements to arbitrate” within it: 

1. The first arbitration agreement required arbitration of all “past, present, and future” disputes arising out of Jackson’s employment, including “claims for violation of any … federal law”;
2. The second arbitration agreement provided 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 Court called this the “delegation provision.”

Jackson sued Rent-a-Center for employment discrimination and challenged the enforceability of the Mutual Agreement on grounds of unconscionability. 

The Court’s Robust Application of Severability Case Law
Relying on cases that require the party opposing arbitration to attack the arbitration clause itself, not the “container contract,” the Court held that Jackson’s challenge failed because he failed to attack the separable delegation provision itself as unconscionable. As the majority saw it, “[t]he delegation provision is an agreement to arbitrate threshold issues concerning the arbitration agreement.” The challenge did not go to the validity of the delegation provision. 

The Court’s suggestion on how Jackson could have challenged the “delegation provision” shows how high the Court has set the bar. An unconscionability challenge on fee splitting and discovery would need to show, for example, that a limit on the number of depositions would have rendered the delegation provision, not the entire Mutual Agreement, unconscionable. As the Court itself remarked of this required showing: “That would be, of course, a much more difficult argument to sustain ….”

It should be noted, however, that Justice Stevens’ dissent challenged the majority opinion as question-begging, misreading the intent and holding of the forty-plus years of arbitration-jurisdiction case law, and adding a new layer to severability, “akin to Russian nesting dolls.”

International Arbitration Agreements Using Major Rules Likely Harder to Challenge, Too
Parties interested in very broad arbitral power can draw comfort from the Court’s decision: any attempt to challenge the enforceability of a broad delegation of power to an arbitrator will have to be pled and a showing of facts that the specific delegation is unconscionable will need to be made. The Court’s ruling undergirds and strengthens the effect already present in the major sets of international arbitration rules, which already empower arbitrators to decide the extent of their own jurisdiction, including the authority to decide the “existence or validity of the arbitration agreement.” (e.g., ICC Rule 6.4; ICDR International Arbitration Rule 15.1; LCIA Rule 23.1; UNCITRAL Rule 21.1). Furthermore, under the heightened pleading requirements set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), parties challenging specific clauses within arbitration agreements will be required to state a claim to relief that is plausible on its face.

Tips
Those drafting to seek even greater clarity would do well to consider the specific language of Rent-a-Center’s delegation clause itself. To ensure greater probability of enforcement of an arbitration provision, Rent-a-Center counsels setting forth the provisions in separate, severable paragraphs or clauses.