Written by Robert S. Amador*
Mandatory binding contractual arbitration clauses are ubiquitous in American commerce today. They are found in the agreements of many common businesses, including real estate, healthcare, construction, insurance, retail sales and rental, cell phones, telecommunications, credit cards, and investments, among many others. They are also very common in employment agreements, regardless of the industry. Their popularity stems from the many perceived desirable benefits of arbitration versus court litigation, namely confidentiality, lower expense, more efficiency, and more conservative awards than jury verdicts.
Arbitration clauses in these agreements usually delegate to the arbitrator the power to decide so-called "gateway" or "arbitrability" issues, including whether the arbitration provision governs the dispute at issue, whether the agreement is valid and enforceable, and whether the party against whom the agreement is being enforced is bound by it. Delegation clauses are enforceable according to their terms under both federal and California law. (Henry Schein, Inc. v. Archer & White Sales, Inc. (2019) 139 S.Ct. 524; First Options of Chicago, Inc. v. Kaplan (1995)
514 U.S. 938; Aanderud v. Superior Court (2017) 13 Cal.App.5th 880.) But how enforceable are they really? This article explores some of the challenges they face.
The rules of most arbitration provider organizations grant that power to arbitrators. For example, a JAMS sample arbitration clause reads as follows: "Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration." (Italics added.) Similarly, rule 7 of the Rules for Commercial Arbitration of the American Arbitration Association provides: "(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim. [¶] (b) The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part." (Italics added.) Many arbitration clauses expressly state these powers in the agreement; others simply...
