It's that recurring issue: Who decides – the court or an arbitrator – whether a claim is subject to arbitration? The typical, if knee-jerk, answer is that this is a threshold issue for a court to decide. Well, hold on for a big exception. The arbitrator decides arbitrability. Kubala v. Supreme Production Services (5th Cir 07/20/2016)
Ted Kubala sued his employer claiming FLSA violations. Before it had learned of the suit, the employer announced a new policy requiring employees to arbitrate employment disputes, including FLSA claims. The agreement stated that an employee’s continued employment was expressly conditioned on his acceptance of the terms of the agreement. Kubala continued working and cashed his paycheck, so the court held that he accepted the arbitration agreement. "The [of Texas] law allows an employer to impose an arbitration agreement as a term of continued employment so long as it provides notice of the policy."
Kubala then argued that the arbitration agreement could not be applied retroactively to his claim that he filed before the agreement went into effect. This is where the recurring question arises: Who makes that decision?
The arbitration agreement contained a "delegation" clause, that assigned the job to an arbitrator:
The arbitrator shall have the sole authority to rule on his/her own jurisdiction, including any challenges or objections with respect to the existence, applicability, scope, enforceability, construction, validity and interpretation of this Policy and any agreement to arbitrate a Covered Dispute.
This clause is almost identical to the one in Rent-A-Center v. Jackson, 561 US 63 (2010), where the US Supreme Court held that the clause requires the court to refer a claim to arbitration to allow the arbitrator to decide gateway arbitrability issues.
The 5th Circuit provided a nice little roadmap:
Ordinarily this type of dispute involves two layers of arguments—the merits (does Kubala have a right to back pay?) and arbitrability of the merits (must Kubala bring his claim for back pay in arbitration rather than in court?). The presence of a delegation clause adds a third: “Who should have the primary power to decide” whether the claim is arbitrable. Delegation clauses are enforceable and transfer the court’s power to decide arbitrability questions to the arbitrator. Thus, a valid delegation clause requires the court to refer a claim to arbitration to allow the arbitrator to decide gateway arbitrability issues.