Yesterday, the US Supreme Court ruled that when (a) there’s a dispute over whether the arbitration provision in a contract is enforceable, and (b) the contract says that the arbitrator should decide that question, then the arbitrator will decide that question. As the lawyers say: if the contract says so, the arbitrator decides questions ofarbitrability and whether the dispute is arbitrable.
Rent-A-Center v. Jackson: Backstory and Decision
In Rent-A-Center, West, Inc. v. Jackson (PDF), an employee sued his former employer for racial discrimination. They had a contract providing that any employee claims related to his employment must be submitted exclusively to arbitration, not to a court. The contract also said the arbitrator, not a judge, should decide any questions about whether to enforce the arbitration terms of the contract.
To make a long story short, in a 5-4 vote, the Justices agreed that under the Federal Arbitration Act, the contract in this case should be enforced as written. So, they sent the case back to the arbitrator to decide whether the employee’s discrimination claims should be heard, and ultimately decided, in arbitration or in court. A principal reason for the Justices’ decision: the employee attacked the entire contract for being “unconsionable,” not just the arbitration provision or the part referring arbitrability disputes to the arbitrator.
Effect on Construction Arbitration
Arbitration provisions are almost as frequent in construction contracts as they are in employment contracts. And the Justices’ mandate in this case will probably apply with no less force to controversies over who decides the arbitrability of construction disputes as it does to employment disputes.
I suspect it may probably apply with even more force. In this case the employee’s principal arguments against the arbitrator deciding arbitrability were focused on the unequal bargaining power between himself and his employer when entering into their contract. That’s common in employment disputes. But it’s less common in construction contracts and subcontracts, at least on commercial and government projects where the owners, contractors, and subcontractors tend to be more sophisticated business operators. And that yields at least the appearance of more balanced bargaining power.
This decision dramatically increases the odds that when construction contract with a similar provision – the arbitrator decides arbitrability – comes into dispute, other judges will enforce that provision. The arbitrator, not a judge, will then decide whether the dispute should stay in arbitration or go back to court.
If your contracts have these types of terms, or you’re considering them, yesterday’s decision is a reminder to re-focus and reconsider how those terms could affect you and your project.
