The interplay of the separability doctrine and delegation clauses can create a bullseye that only Hawkeye, the OG Avenger with a bow, might have a prayer of hitting. The Missouri Supreme Court provided a nice reminder about this problem in a recent case, State Ex Rel. Newberry v. Jackson, 2019 WL 2181859 (May 21, 2019).
The underlying facts of the case are simple enough: employees filed timely charges of sex, age, and disability discrimination with the Missouri Human Rights Commission. They received notices of a right to sue their employer. The employer, in turn, filed motions to compel arbitration. The employees attacked the arbitration clause as unenforceable because it lacked consideration.
You probably recall that the doctrine of separability, which is a first principle of arbitration law, treats arbitration clauses as analytically independent of the container contracts in which they appear. So, a general attack on the container contract does not necessarily render the arbitration clause ineffective. Separability works to funnel disputes about the validity of container contracts to arbitrators. But here, the employees specifically aimed their consideration argument at the arbitration clause.
According to SCOTUS, a court should decide whether a valid arbitration agreement exists unless there is “clear and unmistakable” evidence that the parties agreed to delegate this determination to the arbitrator. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). In this particular case, however, the employer had incorporated the AAA Rules, and the AAA Rules include a delegation provision, so it looked like the employees would have to arbitrate their lack of consideration argument.
But the employees didn’t give up. Instead, they also took aim at the delegation clause. So, for anyone wanting to count the concentric rings of the target, there was (1) the overall employment contract (container contract) that included (2) an arbitration clause, and the arbitration clause, in turn, contained (3) a delegation provision. The employees zeroed in on the delegation clause, claiming that it was unconscionable and was not supported by consideration.
On first blush, this would seem to be the sort of pin-point shot needed to disable the delegation provision. As SCOTUS explained in Rent-A-Ctr. W., Inc. v. Jackson, 561 U.S. 63, 70-72 (2010), a delegation provision is severable from an arbitration agreement just as that arbitration agreement is severable from the broader employment contract. But, if an employee specifically challenges the delegation provision, then we’re back to having to have a court determine whether the delegation was valid.
But the Missouri Supreme Court waived off the shot. According to the Court, the employees’ “unspecified” unconscionability argument was too generic to render the delegation suspect, and the employees’ lack of consideration argument was aimed only at the arbitration clause as a whole, not at the delegation clause in particular. The Court said, “Rent-A-Center teaches that a delegation clause must be treated as a separate contract within the larger arbitration contract and must be challenged on an additional ground or basis beyond the fact that it is contained in an arbitration contract that the party also contends is invalid.”
In short, as the Missouri Supreme Court reminds us, it’s almost impossible to imagine “an additional ground or basis” for invalidating a delegation clause. The target that a party wanting to avoid a delegation clause must hit is so small that it’s virtually invisible.