Employment Arbitration Agreements (US) | Practical Law

Employment Arbitration Agreements (US) | Practical Law

A Practice Note to assist employers and their counsel when entering into or revising mandatory arbitration agreements with their employees. This Note addresses employment arbitration under the Federal Arbitration Act (FAA), as amended by the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA), and covers the benefits and drawbacks of arbitration, the enforceability of arbitration agreements, defenses to enforcement such as procedural and substantive unconscionability, class and collective action waivers, opt-out provisions, and other drafting and practical considerations. This Note is intended for use by private employers with their nonunionized workforce and is based on federal law, but highlights issues where state law may impose different or additional requirements. For state-specific employment arbitration resources, see State Employment Litigation and Arbitration Toolkit: State-Specific Resources.

Employment Arbitration Agreements (US)

Practical Law Practice Note w-015-2380 (Approx. 97 pages)

Employment Arbitration Agreements (US)

by Practical Law Labor & Employment
Maintained • USA (National/Federal)
A Practice Note to assist employers and their counsel when entering into or revising mandatory arbitration agreements with their employees. This Note addresses employment arbitration under the Federal Arbitration Act (FAA), as amended by the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA), and covers the benefits and drawbacks of arbitration, the enforceability of arbitration agreements, defenses to enforcement such as procedural and substantive unconscionability, class and collective action waivers, opt-out provisions, and other drafting and practical considerations. This Note is intended for use by private employers with their nonunionized workforce and is based on federal law, but highlights issues where state law may impose different or additional requirements. For state-specific employment arbitration resources, see State Employment Litigation and Arbitration Toolkit: State-Specific Resources.
Employment-related disputes and lawsuits are a necessary cost of doing business for many employers. Although employers frequently take steps to minimize the risk of unlawful workplace practices and related liability, they still may face lawsuits by employees who claim they were treated unfairly. Lawsuits can be time-consuming and expensive, even if the employees' claims are meritless.
Some employers prefer to resolve employment-related disputes in arbitration rather in court. Many employers reevaluated their views of employment arbitration or revisited their existing arbitration agreements after the US Supreme Court's decision in Epic Systems Corp. v. Lewis, which held that class and collective waivers are enforceable and do not violate or conflict with the National Labor Relations Act (NLRA) (138 S. Ct. 1612, 1622-24, 1632 (2018); see Class and Collective Action Waivers). However, given the increased risk of potentially having to defend multiple individual arbitrations of related claims, some employers are once again reevaluating the benefits and drawbacks of class waivers, and arbitration more generally (see Serial or Mass Individual Arbitrations).
Employers have been reevaluating their arbitration programs and agreements in light of the enactment of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA). Effective March 3, 2022, the EFAA added a new Chapter 4 to the FAA, rendering unenforceable, at the claimant's option, predispute arbitration agreements and class waivers in cases relating to sexual assault and sexual harassment disputes (see Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021).
This Note describes the legal framework applied to arbitration agreements, including several US Supreme Court cases after Epic Systems and other developments affecting arbitration practice. It also highlights practical issues for employers to consider when drafting employment arbitration agreements and implementing arbitration programs with their existing workforce and new employees. Specifically, this Note discusses:
  • Legal standards and issues arising under the Federal Arbitration Act (FAA), as amended by the EFAA, including:
    • exceptions to FAA coverage; and
    • comparisons between the FAA and state arbitration law.
  • Benefits and drawbacks of employment arbitration.
  • Whether the court or arbitrator decides threshold issues, such as:
    • contract formation;
    • defenses to enforceability, including procedural and substantive unconscionability; and
    • the arbitrability of specific claims.
  • Drafting considerations, such as whether to include:
    • carve-outs from an arbitration agreement's scope, such as sexual harassment and sexual assault claims;
    • class and collective action waivers; and
    • opt-out provisions.
  • Challenging and confirming arbitration awards.
  • Legislative efforts regarding employment arbitration.
For more on drafting arbitration agreements, see Drafting and Implementing an Employment Arbitration Agreement Checklist (US). For a collection of other employment arbitration resources, see Employment Arbitration Toolkit (US). For state-specific resources, see State Employment Litigation and Arbitration Toolkit: State-Specific Resources.

Employment Arbitration Basics

Arbitration is a contractual alternative to litigation for dispute resolution. It is based on the parties' agreement to submit their disputes to arbitration and the terms of the parties' agreement govern the arbitration proceedings. Arbitration is a private forum where an independent arbitrator makes an award, acting in a judicial fashion, to resolve the dispute. The outcome (the award) is final and binding on the parties, subject to limited grounds for challenging the award in court (see Challenging Arbitral Awards in Court).
Arbitration agreements are commonly used in the employment context and have been routinely enforced by the courts. Arbitration can benefit both the employer and the employee (see Benefits and Drawbacks of Arbitration Versus Court). However, when agreeing to resolve their disputes by arbitration, employees give up their right to have grievances against their employer heard by a jury or judge in a court of law. Unlike commercial arbitration agreements between sophisticated business entities, the parties to an employment arbitration agreement usually do not have equal bargaining power (except, perhaps, when negotiating an executive employment agreement with a C-suite or senior executive). Employees and their counsel often prefer to litigate in court and challenge the enforceability of arbitration agreements, especially when the agreement also bars classwide arbitration.
Employers may enter into arbitration agreements with individual employees, a class of employees, or an entire workforce in various ways. The employer and the employee (or employees) may indicate an intention to arbitrate employment-related disputes using one or more of:
For a sample clause to be included in other agreements or policies, see Standard Clause, Mandatory Arbitration of Employment-Related Claims (US).
Employers also may opt to arbitrate disputes with their independent contractors and may include arbitration provisions in their independent contractor agreements (see Standard Document, Independent Contractor/Consultant Agreement (Pro-Client)).
Employers sometimes implement a company-wide arbitration program or policy by sending an email or other communication to employees, without entering into individualized signed agreements with their employees. In these circumstances, the employer explains that by remaining employed after the effective date of the arbitration program or policy, employees are agreeing to arbitrate their grievances with the employer. Ideally the employer either:
  • Requires the employees to acknowledge receipt of this communication.
  • Can otherwise establish proof of receipt.
For more on entering into enforceable agreements, see Threshold Issues.

Deciding Whether to Arbitrate

Employers must make a strategic decision about whether to enter into arbitration agreements with employees. There is no one-size-fits all solution and the analysis depends on various factors, including:
  • The employer's size and location. Larger, multi-jurisdictional employers must comply with a panoply of federal, state, and local laws and may be at greater risk for class action claims. The same is true for employers that rely heavily on independent contractors rather than traditional employees. These employers may enjoy greater benefits from an arbitration program, especially if they include a class and collective action waiver (for a sample waiver, see Standard Clause, Class and Collective Action Waiver for Employee Arbitration Agreements (US)). However, the countervailing risk of serial or mass individual arbitrations may outweigh the benefits of including a class waiver (see Serial or Mass Individual Arbitrations).
  • The composition of its workforce. Employers with many low-wage workers who may be more likely to bring claims for unpaid overtime or meal and rest breaks may benefit from using class and collective waivers available in arbitration (see Class and Collective Action Waivers). Employers must ensure that their agreements are written in plain language and clearly explain what rights the employees are waiving by signing the agreement or agreeing to be bound by an arbitration program. Employers also should consider translating the agreements for employees whose primary language is not English.
  • The employer's risk profile and claim history. Employers with a history of class or collection action claims, such as wage and hour or discrimination lawsuits, may prefer to resolve cases in arbitration to avoid further representative actions. However, if employees bring multiple arbitrations of related claims which cannot be joined or consolidated, the employer's costs of arbitration may be high and diminish the benefits of arbitration (see Serial or Mass Individual Arbitrations, Consolidation of Proceedings, and Arbitration Fees and Costs).
  • The employer's workplace culture and values. Employers that value transparency with their workforce may be less inclined to require arbitration, which is inherently more confidential and less transparent than public court proceedings. Employers also can no longer enforce predispute mandatory arbitration agreements in sexual assault or sexual harassment disputes, unless it is the employee's option to do so. However, employers that exclude sexual harassment claims from arbitration but not related claims of sex discrimination may risk having to defend sex harassment and discrimination or other related claims in two proceedings (one in arbitration and one in court), which diminishes the advantage of arbitration (see Claims Not Covered).
For more on the differences between arbitration and litigation, see Practice Note, Arbitration vs. Litigation in the US.

Benefits and Drawbacks of Arbitration Versus Court

Benefits of Arbitration

Employers may favor arbitration because it:
  • Can eliminate or reduce the risk of private employment class actions for wage and hour, employment discrimination (but not for sexual assault or sexual harassment disputes), and other labor and employment claims otherwise amenable to class or collective action:
  • May be more cost-effective because discovery and motion practice are sometimes more limited in scope than in court proceedings (see Discovery and Dispositive Motions).
  • May be faster and provide finality sooner than litigation because of the limited right to challenge arbitral awards (Challenging Arbitral Awards in Court).
  • May increase the likelihood of settlement because awards in arbitration are generally smaller than in court.
  • Provides a more private forum with less publicity than court proceedings (see Confidentiality of Proceedings).
  • Allows the parties to select an arbitrator with subject matter expertise and retain some control over the arbitrator selection process, rather than the random judge assignments that happen in court.
  • Is more flexible procedurally because the parties can customize the rules governing discovery and hearing.
  • May be more convenient for the lawyers and witnesses on scheduling issues.
  • Provides easier access to the arbitrator when discovery or other disputes arise between the parties during the proceedings, such as allowing for communications by email or phone calls for a quick resolution (though some courts have begun to allow similar procedures, originally necessitated by the COVID-19 pandemic).

Drawbacks of Arbitration

However, arbitration presents potential disadvantages for employers because:
  • Arbitration fees can be substantial, especially where the employer:
  • Discovery costs can remain high, especially in cases that involve substantial e-discovery or where the arbitrator is permissive about discovery motions (see Practice Note, E-Discovery in Employment Cases: Practical Considerations for Employers).
  • Arbitrators may be less likely to grant dispositive motions, such as motions for summary judgment or motions to dismiss, increasing the likelihood that a claim may proceed to a hearing on the merits (Dispositive Motions).
  • Desirable arbitrators may have full calendars which can create scheduling difficulties.
  • The parties may have difficulty agreeing on an arbitrator.
  • Arbitrators may be less likely to accept procedural defenses such as laches, statutes of limitations, or exhaustion of administrative remedies (see Practice Note, Exhaustion of Administrative Remedies and Statutes of Limitations Under Employment Discrimination Laws).
  • Arbitrators are more likely to allow hearsay and irrelevant evidence because they are not bound to follow the Federal Rules of Evidence (FRE) or their state equivalents, unless the arbitration agreement specifically provides otherwise (Practice Note, Evidence in Federal Court: Overview).
  • Some arbitrators may be incentivized to allow (or subconsciously biased toward allowing) the dispute to proceed to hearing or prolong it because they:
    • are paid for each hearing day;
    • do not want to earn a reputation for routinely granting pro-employer dispositive motions; or
    • believe that plaintiffs should have an opportunity to present their case on the merits in arbitration.
  • Although arbitration is private, it is not automatically confidential. Nothing in the FAA or the arbitral institution rules requires the parties or counsel to treat the proceedings as confidential. If employers want greater confidentiality regarding the arbitration, they should include an explicit confidentiality provision in the arbitration agreement (see Confidentiality of Proceedings). For more information on confidentiality, see Practice Note, Confidentiality in US Arbitration.
  • Some courts have noted precedent holding that by requiring arbitration of employment-related disputes the employer has necessarily altered the at-will nature of the employment relationship and created implicit for cause termination protections (Warfield v. Icon Advisers, Inc., 26 F.4th 666, 670 (4th Cir. 2022) (citing precedent)). However, this is not a dominant view outside the context of collective bargaining agreements (CBAs) and, to a lesser extent, employment disputes that must be arbitrated before the Financial Industry Regulatory Authority (FINRA).
  • Courts generally do not disturb an arbitrator's award, even if it is erroneous on the facts or the law, unless the arbitration agreement allows for expanded judicial review (to the extent proceeding under and allowed by applicable state law) (see Challenging Arbitral Awards in Court and Practice Note, Drafting Arbitration Agreements Calling for Arbitration in the US: Merits Review of Arbitral Awards).
  • Given the limited right of appeal in arbitration, employers may prefer a class or collective action in court over:
  • Effective March 3, 2022, the EFAA prevents employers from enforcing predispute arbitration agreements regarding sexual assault and sexual harassment disputes (unless the employee opts for arbitration), which may result in:
    • duplicative proceedings in arbitration and court, where some claims (such as compensation disputes) may be subject to mandatory arbitration while sexual harassment claims are excluded;
    • motion practice to determine whether the claims are covered by Chapter 4 of the FAA; or
    • employees "tacking on" sexual harassment claims to other discrimination, harassment, or retaliation claims to avoid mandatory arbitration.
    For more information, see Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.
  • Employers requiring their employees to arbitrate all employment-related claims (to the extent allowed) may face negative publicity or backlash from customers, investors, or other members of the public. Even before the enactment of the EFAA, some employers had excluded sexual harassment claims from their arbitration agreements or eliminated their mandatory arbitration programs entirely to provide greater transparency into their workplace practices.
  • Entering into arbitration agreements with employees may not foreclose lawsuits or investigations by administrative agencies, such as the DOL or EEOC, on behalf of employees (see EEOC v. Waffle House, Inc., 534 U.S. 279, 298 (2002); Scalia v. CE Sec. LLC, (E.D.N.Y Aug. 25, 2021) (denying motion to compel arbitration against DOL because DOL was not a signatory to the employer's arbitration agreements with its employees)).
  • Seeking to compel arbitration may invite motion practice about whether the parties have entered into a valid arbitration agreement or whether a claim is arbitrable and therefore increase an employer's overall litigation costs (see, for example, In re Whataburger Rests. LLC, 645 S.W.3d 188 (Tx. 2022) (issuing a writ of mandamus compelling arbitration after more than nine years of litigation about arbitrability)).
Practitioners must recognize that the scope and enforceability of arbitration agreements are fluid areas of the law and can change rapidly based on new legal decisions which may affect best practices for an employer. Employers therefore should periodically:
  • Review their arbitration agreements, policies, or programs.
  • Reassess their decision about whether to require arbitration:
    • of some or all employment-related claims; and
    • with some or all of their workforce.
For a general comparison of arbitration and litigation, see Practice Note, Arbitration Versus Litigation in the US.

The FAA and Employment-Related Claims

A stand-alone arbitration clause or an arbitration provision contained in a broader employment-related contract is generally governed by the FAA (9 U.S.C. §§ 1 to 16). The FAA governs written arbitration provisions in:
  • Any maritime transaction.
  • Any contract evidencing a transaction involving interstate or foreign commerce, subject to limited exceptions (see Exceptions to FAA Coverage).
(9 U.S.C. §§ 1, 2.)
The FAA embodies a federal policy that strongly favors arbitration (AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011); Southland Corp. v. Keating, 465 U.S. 1, 11-16 (1984); Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). The FAA's core principle is that arbitration agreements covered by the FAA must be considered "valid, irrevocable, and enforceable, save as upon such grounds as exist at law or in equity for the revocation of any contract" (9 U.S.C. § 2). This so-called "savings" clause only allows courts to invalidate arbitration agreements based on generally applicable contract defenses, such as fraud, duress, and unconscionability (Epic Sys., 138 S. Ct. at 1622-24). The EFAA amended the savings clause to also allow claimants, at their option, to invalidate predispute arbitration agreements in cases relating to sexual assault or sexual harassment (9 U.S.C. § 402(a); see also Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021).
The FAA applies to actions in both federal and state court. However, general contract formation issues and defenses (except the applicability of Chapter 4) are determined under applicable state law (First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); see Threshold Issues).
Pre-EFAA, the Supreme Court consistently enforced mandatory arbitration of employment-related claims, including federal and state statutory claims for discrimination (see, for example, Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) (enforcing compulsory arbitration of ADEA claim); Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001) (enforcing arbitrability of California state law discrimination claims and holding that the FAA applies to all employment contracts, except for those regarding transportation workers)). Following Gilmer, the federal circuit courts of appeal have consistently found that claims under Title VII of the Civil Rights Act of 1964 (Title VII) and Section 1981 of the Civil Rights Act of 1866 (Section 1981) are arbitrable (see, for example, E.E.O.C. v. Luce, Forward, Hamilton & Scripps, 345 F.3d 742, 748-49 (9th Cir. 2003) (joining all other circuits in holding that Title VII claims were arbitrable); Lambert v. Tesla, Inc., 923 F.3d 1246, 1250-51, n.3 (9th Cir. 2019) (holding that Section 1981 claims were arbitrable, consistent with the few other courts to have addressed the issue)). However, the EFAA now restricts the mandatory arbitration of sexual assault or sexual harassment disputes, including claims arising under Title VII or comparable state law, unless it is the claimant's option to arbitrate.
For many years, it had been less certain whether class and collective action waivers were enforceable in employment arbitration agreements. In 2018, the Supreme Court resolved this uncertainty and held that agreements with those waivers:
  • Are enforceable according to their terms, subject only to traditional contract defenses.
  • Do not conflict with or violate employees' right to engage in protected concerted activity under the NLRA.
(Epic Sys., 138 S. Ct. at 1622-24, 1632; see Class and Collective Action Waivers.)
The National Labor Relations Board (NLRB) has acknowledged the Epic Systems decision and has since held that arbitration agreements with class action waivers are enforceable (see Post-Epic Systems Developments).
However, the EFAA limits the enforceability of predispute class action waivers regarding sexual assault and sexual harassment disputes (9 U.S.C. § 402(a)). For more information on the FAA generally, see Practice Note, Understanding the Federal Arbitration Act.

Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021

After years of legislative and political debate over the issue, on March 3, 2022, President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA) (H.R. 4445). Effective on enactment, the law adds a new Chapter 4 to the FAA and renders unenforceable, at the claimant's election, any predispute agreement "with respect to a case" that "relates to" a sexual harassment or sexual dispute requiring any person to:
  • Arbitrate those disputes.
  • Waive the right to participate in a joint, class, or collective judicial, administrative, arbitral, or other proceeding regarding those disputes.
(9 U.S.C. § 402(a).)
Chapter 4 of the FAA defines:
  • A "sexual assault dispute" as one "involving a nonconsensual sexual act or sexual contact" as those terms are defined in 18 U.S.C. § 2246 or similar applicable tribal or state law, including when the victim lacks capacity to consent (9 U.S.C. § 401(3)).
  • A "sexual harassment dispute" as one "relating to conduct that is alleged to be sexual harassment" under federal, state, or tribal law (9 U.S.C. § 401(4)).
At least one court has interpreted "state" law to include local law (Yost v. Everyrealm, Inc., , at *11, n.10 (S.D.N.Y. Feb. 24, 2023)).
Chapter 4's application must be determined:
  • Under federal law.
  • By a court, not an arbitrator, regardless of whether:
    • the objecting party challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing the arbitration agreement; or
    • any provision purports to delegate arbitrability to an arbitrator.
(9 U.S.C. § 402(b).)

Cases Interpreting the EFAA's Temporal Scope

The EFAA applies to any dispute or claim arising or accruing on or after March 3, 2022 (Pub. L. 117-90 § 3; see also, for example, Walters v. Starbucks, Inc., 623 F. Supp. 3d 333, 337-38 (S.D.N.Y. 2022) (EFAA does not apply to claims that arose or accrued before March 3, 2022, even if the lawsuit was filed after that date); Hodgin v. Intensive Care Consortium, Inc., , at *2 (M.D. Fla. Mar. 31, 2023) (for EFAA purposes, plaintiff's dispute arose pre-enactment when plaintiff filed a charge with the EEOC, not when plaintiff received an EEOC right-to-sue letter, which was post-enactment)). While not technically retroactive, the law may be applied to arbitration agreements entered into before that date regarding post-enactment disputes.
Federal district courts have disagreed about how to determine when a dispute arises for purposes of applying the EFAA. The federal courts of appeal have not yet addressed this issue (Papaconstantinou-Bauer, M.D. v. Jackson Hosp. & Clinic, Inc., , at * (M.D. Ala. Mar. 18, 2024)).
Some district courts have held that finding the existence of a dispute requires some claim, charge, or other evidence of an adversarial stance, and not just the fact of injury or the occurrence of the underlying complained-of sexual conduct (see, for example, Hodgin, , at *2; Silverman v. DiscGenics, Inc., , at *2 (D. Utah Mar. 13, 2023) (concluding dispute arose when plaintiffs filed discrimination charges with government agency)); see also Kader v. So. Cal. Med. Ctr., Inc., 99 Cal. App. 5th 214 (Cal. Ct. App. 2d Dist. 2024) ("a dispute does not arise simply because the plaintiff suffers an injury; it additionally requires a disagreement or controversy")). Others have found that a dispute may arise before the filing of a claim or charge, relying on the distinction between when a "dispute" arises and when a "claim" accrues in the statutory note (see, for example, Castillo v. Altice USA, Inc., (S.D.N.Y. Oct. 12, 2023) (dispute arose when plaintiff complained about sexual harassment and was subject to retaliation, which occurred pre-enactment); Barnes v. Festival Fun Parks, LLC, at *10 (W.D. Pa. June 27, 2023) (a dispute arises "when the conduct which constitutes the alleged sexual assault or sexual harassment occurs" but court noted that if a claim accrues post-enactment then the EFAA still bars arbitration)).
The EFAA also may bar arbitration of continuing violation claims (such as a hostile work environment) where at least some of the violating conduct occurred after the EFAA's enactment For example, in Betancourt v. Rivian Automotive, the court held that the plaintiff's allegations about incidents of sexual harassment that began pre-EFAA but continued until she stopped working in April 2022 (post-enactment) were sufficient to render the arbitration agreement and class action waiver unenforceable under the EFAA (, at *5 (C.D. Ill. Aug. 21, 2023); see also Watson v. Blaze Media LLC, , at *3 (N.D. Tex. Aug. 3, 2023) (for EFAA purposes, hostile work environment claims could accrue as of the last act contributing to the violation); Turner v. Tesla, , at *4 (N.D. Cal. Aug. 11, 2023) (EFAA barred arbitration even though some of employee's allegations related to acts predating its enactment, as the adverse action underlying several claims was the employee's post-enactment termination); Delo v. Paul Taylor Dance Foundation, Inc., , at *8-10 (S.D.N.Y. Aug. 1, 2023) (plaintiff's hostile work environment claim accrued post-enactment where two post-enactment acts were sufficiently related to pre-enactment conduct forming the basis of plaintiff's claim); Hix v. Dave & Buster's Mgmt. Corp., , at *6-7 (D. Or. Nov. 14, 2023) (plaintiffs' hostile work environment claims accrued on when the last act constituting harassment occurred)).

Cases Interpreting the EFAA's Substantive Scope

As anticipated, the law's scope has begun to be tested in court. At least one court has held that the EFAA bars arbitration of an entire case in which a claimant has alleged a plausible claim of sexual harassment combined with other discrimination, wage, and common law claims not covered by the law (Johnson v. Everyrealm, Inc., (S.D.N.Y. Feb. 24, 2023) (Engelmayer, J.) (evaluating plausibility based on allegations in the amended complaint under an FRCP 12(b)(6) standard)). The Northern District of California adopted a similar approach, holding that the plaintiff's workplace injury and wage claims were intertwined with her sexual harassment claims and therefore could not be compelled to arbitration under the EFAA (Turner, , at *5-8; see also Molchanoff v. SOLV Energy, LLC, , at *3 (S.D. Cal. Mar. 1, 2024) (EFAA barred arbitration of entire case where retaliation claims were covered by the EFAA and claims arising pre-enactment were related to a sexual harassment dispute)).
In a related case to Johnson, Judge Engelmayer determined that before assessing whether the EFAA's barred arbitration of a sexual harassment claim the court must first determine whether the complaint plausibly alleges as "sexual harassment dispute" as defined by the statute (Yost, Case No. 1:22-cv-06549-PAE (S.D.N.Y. Oct. 6. 2022) (order granting plaintiff the opportunity to amend complaint to allege additional facts supporting sexual harassment claim)). The court later held that the plaintiff failed to plead a plausible sexual harassment claim and that the EFAA was not a bar to arbitration (Yost, (S.D.N.Y. Feb. 24, 2023) (granting motion to dismiss sexual harassment claims and ordering briefing on other issues germane to arbitrability)).
Contrary to the holding in Johnson v. Everyrealm, Inc., another judge in the Southern District of New York held that the EFAA bars mandatory arbitration only to the extent the claim "relates to" a sexual harassment dispute," not the entire case. The court found that collective wage and hour claims brought under the FLSA and the New York Labor Law (NYLL) "do not relate in any way" to the plaintiff's individual sexual harassment claims brought under New York's state and city human rights laws. The court therefore held that the plaintiff must arbitrate the FLSA and NYLL wage and hour claims but under the EFAA could not be compelled to arbitrate the sexual harassment claims. (Mera v. SA Hosp. Grp., LLC, , at *3 (S.D.N.Y. June 3, 2023) (Aaron, M.J.) (distinguishing Johnson, where the plaintiff alleged disparate treatment in the form of sexual harassment, race discrimination, including pay discrimination, and retaliation, from the instant case, where the plaintiff alleged failure to pay all nonexempt employees proper wages based on the employer's policies and practices).)
Another court clarified that the law does not apply to harassment disputes generally, but rather only to disputes related to sexual harassment (Pepe v. NY. Life Ins. Co., , at *4 n.19 (E.D. La. Feb. 7, 2023) (holding that "use of the word 'harassment' alone, without supporting legal or factual allegations," is insufficient to preclude arbitration under the EFAA)).
Several courts have held that a retaliation claim based on an underlying sexual harassment complaint constitutes a sexual harassment dispute under the EFAA (see, for example, Molchanoff v. SOLV Energy, LLC, , at *3 (S.D. Cal. Mar. 1, 2024); Hix, , at *9).
Practical Law will continue to monitor legal developments regarding the EFAA's scope and evolving interpretation by the courts.
For more on the EFAA, see Legal Update, Biden Signs FAA Amendment Banning Mandatory Arbitration of Sexual Assault and Sexual Harassment Claims.

Exceptions to FAA Coverage

The FAA applies to most employment-related arbitration provisions with two key exceptions:
The US Court of Appeals for the Ninth Circuit expressly held that these exceptions to FAA coverage cannot be waived by an agreement between the parties, but rather serve as a limit to the court's authority to compel arbitration under the FAA (Romero v. Watkins & Shepard Trucking, Inc., 9 F.4th 1097, 1101 (9th Cir. 2021)).

Court Determines Whether FAA Exception Applies

The Supreme Court's decision in New Prime v. Oliveira resolved a circuit split among the federal appellate courts about who decides whether the FAA exceptions apply. The Supreme Court held that the court must first decide as a threshold issue whether the FAA applies to the parties' contract, even if the contract delegates arbitrability issues to the arbitrator. (New Prime, 139 S. Ct. 532, 539-44 (2019).) If the FAA does not apply, in some circumstances a court may compel arbitration under applicable state arbitration law (see, for example, Arafa v. Health Express Corp., 233 A.3d 495, 509 (N.J. 2020) (FAA did not preempt state arbitration law; plaintiffs' claims were either covered by FAA or could be arbitrated under state law)). To avoid ambiguity, employers may specify in their agreements what arbitration law governs if the FAA does not apply as a matter of law (see Standard Document, Mutual Agreement to Arbitrate Employment-Related Disputes (US): Drafting Note: Governing Law).
The court also must determine whether the EFAA applies to invalidate a mandatory arbitration agreement or class waiver regarding any dispute, regardless of whether the parties' agreement purports to delegate the issue of arbitrability to the arbitrator (9 U.S.C. § 402(b)).

FAA Versus State Arbitration Law

The FAA applies to most employment arbitrations unless the parties have agreed to apply state arbitration law (Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 590 (2008); Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62-64 (1995); Volt Info. Sci., Inc. v. Bd. of Tr. of Leland Stanford Junior Univ., 489 U.S. 468, 477-79 (1989)). The parties' agreement must clearly express an intent to replace the FAA with state law (Mastrobuono, 514 U.S. at 59-60).
FAA law frequently differs in various respects from state arbitration law. For example, under the FAA:
  • Arbitrators generally determine whether the statute of limitations bars a claim. Under some states' arbitration laws, courts make this determination.
  • Arbitrators generally have the authority to award any relief, including punitive damages. Under some states' arbitration laws, arbitrators lack the authority to award punitive damages (see Mastrobuono, 514 U.S. at 58-64). For a more detailed explanation of punitive damages, see Practice Note, Punitive Damages in US Arbitration.
  • Courts lack authority to order classwide arbitration unless the parties have agreed to it in their arbitration agreement (Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1415-17 (2019) (holding that silence or ambiguity on the issue is insufficient)). Some states' arbitration laws may permit courts to order consolidation of related arbitration proceedings or grant arbitrators this authority (see Practice Note, Choosing an Arbitral Seat in the US: New York: Consolidation of Related Proceedings).
  • An order granting a motion to compel arbitration is only appealable if the court dismisses the underlying action. Some state laws allow for the immediate appeal of these orders even if the court stays the action.
  • The grounds for review of an arbitral award are limited and narrowly interpreted. Some states' arbitration laws allow the parties to contract for broader judicial scrutiny.
  • Except as provided in the EFAA, arbitration agreements must be viewed on the same footing as other contracts. Pre-EFAA, some state laws had attempted to limit an employer's ability to require employees to arbitrate sexual harassment or related claims. These laws were largely found to be preempted by the FAA and unenforceable under federal law, but may be enforceable under state arbitration law (see Box, State-Level #MeToo and Other Laws Restricting Mandatory Arbitration of Sexual Harassment Claims).
If the FAA does not apply to the parties' agreement, the employer may seek to compel arbitration under state law as an alternative to proceeding in litigation (see, for example, Saxon v. Sw. Airlines Co., (N.D. Ill. Mar. 10, 2023) (compelling arbitration under Illinois state law where the FAA 's transportation worker exception applies to the parties' arbitration agreement)). For more information, see Box, Airline Workers.
For state-specific resources with more information about state arbitration law, see State Employment Litigation and Arbitration Toolkit: State-Specific Resources.

Threshold Issues

Before compelling or proceeding with arbitration, the court must first determine two threshold issues:
The court or the arbitrator then must address two other threshold or gateway issues. These are:
  • Contract validity. The court (or arbitrator) must decide if the parties entered into a valid and binding arbitration agreement under applicable state law, including whether there are any defenses to contract formation. However, some courts have held that courts must determine the contract's enforceability, and that the issue cannot be delegated to an arbitrator (see, for example, Newman, 23 F.4th at 398-99 ("…deciding enforceability between the parties and an arbitration agreement's existence are two sides of the same coin…It is up to us—not an arbitrator—to decide [both issues]").
  • Arbitrability. The court (or arbitrator) must then determine if the parties have agreed to submit a particular dispute to arbitration, including whether the parties have agreed to collective arbitration (Herrington v. Waterstone Mortg. Corp., 907 F.3d 502, 508-09 (7th Cir. 2018) (citing cases)).
The court generally decides these issues, unless the parties have clearly and unmistakably delegated them to the arbitrator (see Delegating Authority to Decide Arbitrability). However, the parties cannot delegate the determination of whether Chapter 4 of the FAA applies to a given dispute (9 U.S.C. § 402(b)).
For more information on these complex issues, see Practice Notes, Compelling and Enjoining Arbitration in US Federal Courts and Arbitrability Issues in US Arbitration: Determination by a Court or Arbitrator.
Applicable state law determines whether there is a valid contract and whether the parties agreed to arbitrate a particular dispute (First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); see also Hukaba v. Ref-Chem L.P., 892 F.3d 686, 688 (5th Cir. 2018); Chiavarria v. Ralphs Grocery Co., 733 F.3d 916, 922 (9th Cir. 2013); Adams v. Suozzi, 433 F.3d 220, 227 (2d Cir. 2005)). Note, however, that federal law governs the determination of whether the EFAA applies to a given dispute (9 U.S.C. § 402(b)).
Under the FAA and many state laws, there is a presumption resolving ambiguities in favor of arbitration. However, the presumption does not apply to the initial question of whether the parties have made an agreement to arbitrate, which is analyzed according to state contract law principles (see, for example, Applied Energetics, Inc. v. NewOak Capital Mkts., LLC, 645 F.3d 522, 526 (2d Cir. 2011)).
Although state laws vary, a valid contract generally requires, at a minimum:
An arbitration agreement, like any other contract, is subject to common law defenses to enforceability, including:
(Epic Sys., 138 S. Ct. at 1622-24.)
The questions of contract formation and enforceability commonly arise in court after an employee or former employee files a lawsuit and the employer moves to stay or dismiss the court proceeding and compel arbitration under an arbitration agreement (see, for example, Boykin v. Family Dollar Stores of Mich., LLC, 3 F.4th 832 (6th Cir. 2021)). In some cases, one party brings an arbitration proceeding (usually the employer, such as in a breach contract or non-compete dispute), and the other party (usually the employee) challenges the enforceability or the scope of the arbitration agreement in the arbitral forum. For more information, see Delegating Authority to Decide Arbitrability and Compelling and Enjoining Arbitration.

Assent

Under the FAA, arbitration agreements must be in writing (9 U.S.C. § 2; Practice Note, Agreements in Writing Under US Arbitration Law). As with other contracts, there must be proof that the employee assented to the agreement (Lamps Plus, 139 S. Ct. at 1416) ("Consent is essential under the FAA because arbitrators wield only the authority they are given.")). The party seeking to compel arbitration bears the burden of proving an agreement to arbitrate (see, for example, Camara v. Mastro's Rests. LLC, 952 F.3d 372, 373 (D.C. Cir. 2020)).
Employees seeking to avoid arbitration and litigate in court commonly claim either that:
  • They never received the agreement.
  • They never consented to the agreement.
(See, for example, Fedor, 976 F.3d at 1106 n.2 (plaintiffs' claims that they never saw or knew about the arbitration agreement were essentially issues of contract formation for the court to decide).)
The requirements for proving assent are determined under applicable state law and vary by jurisdiction. The easiest way to show assent is with evidence of the employee's pen-and-ink signature on a stand-alone binding arbitration agreement. Sometimes a signature may be required, such as where the agreement is conditioned (implicitly or explicitly) on the parties' signing the agreement (see Hukaba v. Ref-Chem L.P., 892 F.3d 686, 691 (5th Cir. 2018) (refusing to compel arbitration where the employer never signed the agreement but the contract language evidenced an intent that both parties sign to form a binding agreement under Texas law); Flores v. BJ's Rest. Operations Co., , at *1-2 (5th Cir. Oct. 6, 2023) (enforcing arbitration without employer's signature because signing was not a condition precedent for contract execution)). Conversely, the absence of a signed agreement by one employee when other signed agreements exist is relevant evidence to proving (or disproving) an employee's assent (Camara, 952 F.3d at 374-75) (denying employer's motion to compel arbitration where employer could not produce written agreement and employee denied having seen or signed one)).
Depending on the jurisdiction, an employer also may demonstrate assent by an employee's:
Under certain circumstances, an employer may successfully implement an arbitration policy and prove assent by:
  • Providing sufficient notice, which may be email, to the employee explaining:
    • the arbitration program; and
    • that continued employment after the effective date of the program constitutes the employee's agreement to be bound by the agreement to arbitrate.
  • Demonstrating that the employee:
    • received the notice;
    • continued working after program's effective date; and
    • did not opt out of the program, if an opt-out was available.
Courts in various jurisdictions have enforced arbitration agreements where the employee was notified of the arbitration policy and continued to work for the employer after the effective date of the policy (see, for example, Gupta v. Morgan Stanley Smith Barney, LLC, 934 F.3d 705 (7th Cir. 2019) (continued employment after expiration of opt-out period for arbitration program sent by email constituted assent under Illinois law); Gezu v. Charter Comms., 17 F.4th 547, 552-54 (5th Cir. 2021) (same, rejecting claims that plaintiff did not receive the email); McNamara v. Yellow Transp., Inc., 570 F.3d 950, 956-57 (8th Cir. 2009); Seawright v. Am. Gen. Fin. Servs., Inc., 507 F.3d 967, 972-73 (6th Cir. 2007); Acevedo v. Ralph's Grocery, (N.D. Ill. Feb. 7, 2023) (employee's silence and continued employment constituted assent to an agreement stating both parties were bound by it 30 days after employee's receipt); Kelly v. Pfizer, Inc., (M.D. Pa. Nov. 8, 2018); Pelligrino v. Morgan Stanley Smith Barney LLC, , at *3 (S.D.N.Y. May 31, 2018); see also Skuse v. Pfizer, Inc., 236 A.3d 939 (N.J. 2020) (compelling arbitration where employer's email communications contained links to an arbitration agreement, training module, and FAQs and were sufficiently clear and unambiguous that continued employment after 60 days constituted assent to the arbitration agreement)).
Other courts have found that notice followed by continued employment does not constitute assent and is insufficient (see, for example, Shockley v. PrimeLending, 929 F.3d 1012, 1019-20 (8th Cir. 2019) (mere continued employment was not acceptance of an agreement to arbitrate contained in an employee handbook under Missouri law, though it may have been sufficient if the employer had clearly stated and informed the employee that continued employment constituted acceptance); see also Nelson v. Watch House Int'l, L.L.C., 815 F.3d 190, 195-196 (5th Cir. 2016) (an arbitration policy that allowed the employer to unilaterally modify it without advance notice to employees was illusory under Texas law); Coady v. Nationwide Motor Sales Corp., 32 F.4th 288, 292-93 (4th Cir. 2022) (arbitration agreement included in employee handbook which reserved the employer's right to unilaterally "change, abolish, or modify" the employer's policies without notice was illusory under Maryland law)).
Regardless of the means used to communicate the terms of the arbitration provision, the employer ultimately must demonstrate that the employee knowingly agreed to arbitrate their claims and waive the right to the judicial forum (see Avoiding Handbook Language That Negates Contractual Intent or Renders Agreement Illusory). For example, courts have held that:

Using Electronic Signatures

Employers commonly use some form of electronic signature or assent, especially when rolling out an arbitration program with all or most of their workforce. Electronic signatures can have the same force and effect as a pen-and-ink signature (see Practice Note, Signature Requirements for an Enforceable Contract). However, if relying on electronic signatures, employers ideally should:
  • Require that employees:
    • access the document using a unique user name and password; and
    • click an acceptance box and generate their initials on the arbitration agreement or adjacent to the arbitration clause.
  • Be prepared to present evidence that the employer cannot alter the information once submitted by the employee.
  • Preserve that information in case employees later challenge their assent to the agreement.
(See, for example, Taylor v. Dolgencorp, LLC, , at *3 (E.D. Mo. Nov. 19, 2019); Magee v. Francesca's Hldg. Co., , at *9 (D.N.J. June 15, 2020) (plaintiffs' mere claims that they did not remember signing arbitration agreements were insufficient to defeat motion to compel arbitration especially where plaintiffs either logged in using their personal account or used a unique identifier sent to their email when executing the arbitration agreements); Aerotek,, Inc. v. Boyd, 624 S.W.3d 199 (Tex. 2021) (compelling arbitration based on electronic onboarding system despite plaintiffs' denial that they agreed to arbitrate); Coffey v. OK Foods Inc., , at *3-4 (W.D. Ark. Jan. 6, 2023) (plaintiff's claim that plaintiff did not recall signing arbitration and that the forms contained some irregularities were insufficient to meet burden of proof that signature was forged); but see Barrows v. Brinker Rest. Corp., 36 F.4th 45 (2d Cir. 2022) (employee's unequivocal and detailed affidavit that the employee did not electronically (or otherwise) sign an arbitration agreement was sufficient to create triable issue of fact and defeat motion to compel arbitration)).
Employers rolling out an arbitration program using the company's email system should present a page after login that requires the employees to scroll through and check a box saying that they:
  • Read and agreed to the arbitration agreement.
  • Knowingly waive their right to have any claims arising out of the employment relationship heard by a court or jury.
In some states, it may be sufficient to show merely that the email was delivered in accordance with regular office procedures (see, for example, Lockette v. Morgan Stanley, , at *4 (S.D.N.Y. Oct. 3, 2018) (finding delivery of email with changes to arbitration program sufficient to demonstrate assent given presumption of receipt under New York law)).
However, in some circumstances, an employee's sworn statement that they never saw the electronically transmitted arbitration agreement may be sufficient to create a factual dispute about assent and defeat a motion to compel arbitration (Bazemore v. Papa John's U.S.A., Inc., 74 F.4th 795, 798 (6th Cir. 2023) (noting plaintiff's claim of having witnessed supervisor logging in for plaintiff and other employees using their user ID on other occasions)).
Employers relying on electronic signature should know and follow procedures under applicable state law (see Practice Note, Signature Requirements for an Enforceable Contract: The Uniform Electronic Transactions Act and Standard Document, Electronic Signature Policy). Employers should also consider adding a clause expressing the parties' intent to be bound by an electronic signature. For a sample, see Standard Clause, General Contract Clauses: Electronic Signatures.

Avoiding Handbook Language That Negates Contractual Intent or Renders Agreement Illusory

In some jurisdictions, employees can assent to an arbitration agreement contained in an employee handbook merely by continuing to work for the employer where an employee handbook or other communication states that acceptance of an arbitration agreement is a condition of employment (Aldrich v. Univ. of Phoenix, Inc., 661 F. App'x 384, 390-91 (6th Cir. 2012) (applying Kentucky law); Brown v. St. Paul Travelers Cos., Inc., 331 F. App'x 68, 69-70 (2d Cir. 2009) (applying New York law)).
Employers that incorporate an arbitration agreement into an employee handbook must avoid common blanket disclaimers stating that "this handbook does not constitute a binding contract" or other words disclaiming an intent to form a contractual relationship (see, for example, Hergenreder v. Bickford Sr. Living, LLC, 656 F.3d 411, 413-14 (6th Cir. 2011) (applying Michigan law); Lorenzo v. Prime Comms., L.P., 806 F.3d 777, 782 (4th Cir. 2015) (implied assent to the arbitration policy in an employee handbook based on employee's receipt and review of the handbook was nullified by an express statement acknowledging that nothing in the handbook constituted a contract) (applying North Carolina law)). Employers cannot simultaneously disavow an intent to form a contract in a handbook and rely on language in the handbook to create a binding arbitration agreement (see, for example, Seltzer v. Clark Assocs., LLC, , at *3 (S.D.N.Y. Sept. 3, 2020)).
Employers similarly must use caution if reserving the right to modify or abolish the policies or procedures in an employee handbook. If the arbitration agreement is included in an employee handbook, an acknowledgement of the employer's ability to do so may render the arbitration agreement illusory and unenforceable under applicable state law (Coady, 32 F.4th at 292-93).
To avoid forming a contract for other purposes, such as unintentionally creating a for-cause employment relationship, employers should include language such as "except as otherwise provided in [the section containing the arbitration clause], nothing else in this handbook creates or constitutes a binding contract" or words to that effect (see, for example, In re Whataburger Rests. LLC, 645 S.W.3d at 196).

Consideration

Like any other contract, an arbitration agreement must be supported by sufficient consideration. In most jurisdictions, an employment offer requiring an employee to enter into a mandatory arbitration agreement as a condition of employment is sufficient.
In many jurisdictions, an at-will employee's continued employment also may constitute sufficient consideration for an arbitration agreement (see, for example, Tillman v. Macy's, Inc., 735 F.3d 453, 460 (6th Cir. 2013) (applying Michigan law); Dantz v. Am. Apple Grp., LLC, 123 F. App'x 702, 708 (6th Cir. 2005) (applying Ohio law); Soto v. State Indus. Prods., Inc., 642 F.3d 67, 74-75 (1st Cir. 2011) (applying Puerto Rico law); Tinder v. Pinkerton Sec., Inc., 305 F.3d 728, 734-35 (7th Cir. 2002) (applying Wisconsin law)).
In some states, however, mere continued at-will employment is not sufficient consideration (see Baker v. Bristol Care, Inc., 450 S.W.3d 770, 775-76 (Mo. 2014) (stating that neither new nor continued at-will employment is sufficient consideration to support a contract under Missouri law); Cox v. Dine-A-Mate, Inc., 501 S.E.2d 353, 356 (N.C. App. 1998) (holding that at-will employment is not sufficient consideration for a non-compete agreement under North Carolina law)). In these jurisdictions, employers entering into arbitration agreements with their current workforce must provide additional consideration.
Continued employment also is insufficient consideration if the employer already is bound to employ the employee for a fixed term under an employment agreement (see, for example, Vedachalam v. Tata Am. Int'l Corp., 331 F. App'x 761, 763 (9th Cir. 2009)).
Depending on the jurisdiction and circumstances, sufficient consideration may consist of:
The employer should list any benefits being offered to the employee that may constitute additional consideration for the agreement. For more about consideration under state law in the non-compete context, see Non-Compete Laws: State Q&A Tool: Question 8.

Unconscionability

Employees often attack mandatory arbitration agreements on unconscionability grounds, claiming that the way the employer obtained the agreement and the agreement's substantive terms are inherently unfair and should invalidate the agreement. Unconscionability is a threshold contract formation issue determined as a matter of state law.
In most jurisdictions, an employee must show that an agreement was both substantively and procedurally unconscionable when made (Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d 115, 121-22 (2d Cir. 2010)). Some jurisdictions, such as California, apply a sliding scale approach. The more substantively unconscionable the agreement, the less procedural unconscionability is required to defeat enforcement, and vice versa. (Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 114 (2000).)
In other jurisdictions, a showing of either procedural or substantive unconscionability alone may suffice to invalidate an arbitration agreement (see, for example, Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250, 263 (Ill. 2006) (procedural unconscionability may invalidate agreement); Adler v. Fred Lind Manor, 103 P.3d 773 (Wash. 2004) (substantive unconscionability alone is sufficient, but the court declined to rule whether procedural unconscionability alone can void a contract); Maxwell v. Fidelity Fin. Servs., Inc., 907 P.2d 51 (Ariz. 2005) (same)).

Procedural Unconscionability

Procedural unconscionability is a defense to contract formation that concerns the alleged lack of meaningful choice by one party to the agreement. While the precise test varies by jurisdiction, courts assessing whether an agreement is procedurally unconscionable generally consider factors such as:
  • Whether the agreement is a contract of adhesion. However, an employer simply presenting an agreement on a take-it-or-leave-it basis is generally insufficient to constitute procedural unconscionability.
  • The employee's experience, background, and education. The greater the employee's sophistication, the less likely that the agreement is procedurally unconscionable.
  • How long the employee had to consider the agreement, including whether the employee had an opportunity to consult with counsel or other advisors or to opt out of the agreement (see Opt-Out Provisions).
  • The disparity in bargaining power between the parties, though a mere disparity alone does not generally make an agreement unconscionable.
  • Whether the arbitration clause is:
    • hidden or buried within a longer agreement; or
    • contains unduly complex language, considering the sophistication of the parties.
(See, for example, Kepas v. eBay, 412 F. App'x 40, 45 (10th Cir. 2010); Seawright v. Am. Gen. Fin. Servs., Inc., 507 F.3d 967, 977 (6th Cir. 2007); Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 787 (2d Cir. 2003); Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 783 (9th Cir. 2002); Lim v. TForce Logistics, Inc., 8 F.4th 992, 1000-01 (9th Cir. 2021).)

Substantive Unconscionability

To determine if an agreement is substantively unconscionable, courts must decide whether the terms unreasonably favor the party seeking to enforce the contract. Although there is no one test for determining substantive unconscionability, employment arbitration provisions may be substantively unconscionable when the agreement:
To avoid challenges based on substantive unconscionability, employers generally should give employees the same rights and remedies in arbitration as the employees would have had if they had brought their claim in federal or state court. For these reasons, employers generally should not:

Deciding Unconscionability

In Rent-A-Center West v. Jackson, the Supreme Court considered whether courts must hear claims that an arbitration agreement is unconscionable, even when the parties have clearly and unmistakably assigned that authority to the arbitrator. The court held that a challenge to the validity of an arbitration agreement containing a provision delegating that authority to the arbitrator must be decided by the arbitrator and not a court. (561 U.S. 63, 68-69 (2010).) Clauses incorporating AAA rules clearly and unmistakably assign issues of contract formation, including unconscionability, to the arbitrator because the rules provide that arbitrators have jurisdiction to determine the existence, scope, or validity of an arbitration agreement (see Employment Arbitration Rules & Mediation Procedures, Rule 6).

Arbitrability

Substantive arbitrability concerns whether and to what extent the parties' particular dispute is covered by an enforceable arbitration agreement. The party seeking to compel arbitration has the burden to show that the parties' dispute is arbitrable.
For agreements covered by the FAA:
  • Federal law governs the question of arbitrability unless the parties unmistakably indicate their intent to apply state arbitrability law (Brennan v. Opus Bank, 796 F.3d 1125, 1129 (9th Cir. 2015)). However, federal law governs the determination of whether the EFAA applies to a particular dispute, regardless of the parties' intent to apply state law (9 U.S.C. § 402(b)).
  • Doubts concerning arbitrability of a dispute are resolved in favor of arbitration (Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25). However, it is unclear whether this presumption in favor of arbitrability will apply when analyzing the application of the EFAA.
Under federal law, courts generally decide arbitrability and other threshold issues unless the parties have clearly and unmistakably delegated this authority to the arbitrator, in which case the arbitrator decides the issue. Courts must honor the parties' intent as expressed in their arbitration agreement. (AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986); Rent-A-Center West, 561 U.S. at 68-69; Wells Fargo Advisors, LLC v. Sappington, 884 F.3d 392, 395-96 (2d Cir. 2018).)
However, the court must decide whether the EFAA governs a particular dispute. The parties cannot delegate that issue to the arbitrator. (9 U.S.C. § 402(b).)

Delegating Authority to Decide Arbitrability

Employers' arbitration agreements commonly delegate the question of arbitrability to the arbitrator. Delegating this power to the arbitrator may diminish the chances of litigation and related motion practice about the arbitrability of the dispute (see Arrigo v Blue Fish Commodities, Inc., 408 F. App'x 480, 482 (2d Cir. 2011); Philippe v. Red Lobster Rests. LLC, , at *4 (S.D.N.Y. Aug. 3, 2015); Awuah v. Coverall N. Am., Inc., 554 F.3d 7, 10-12 (1st Cir. 2009)). By delegating arbitrability to the arbitrator, employers also may avoid a court ruling on conditional class certification because arbitrability is a threshold question to be determined at the outset (see, for example, Edwards v. DoorDash, Inc., 888 F.3d 738, 742-43 (5th Cir. 2018)).
The parties may delegate this authority to the arbitrator by either or both:
The US Supreme Court has not yet decided and expressly left open the question of whether incorporating institutional rules in fact delegates arbitrability to the arbitrator (Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 531 (2019); see also case on remand, Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274 (5th Cir. 2019) (incorporating AAA rules did not delegate arbitrability determination regarding claims that were carved out of arbitration agreement)). Although the Supreme Court originally granted certiorari in June 2020 agreeing to review this decision (141 S. Ct. 107 (2020)), it later dismissed the case, leaving the 2019 Fifth Circuit decision on remand as the operative decision for the dispute and governing law within that jurisdiction (Henry Schein, Inc. v. Archer & White Sales, Inc., 141 S. Ct. 656 (2021) (certiorari improvidently granted)).
Even if the parties broadly delegate the issue of arbitrability to the arbitrator, a court lacks authority under the FAA to compel arbitration:
  • If the parties' contract is not covered by the FAA (New Prime, 139 S. Ct. 532).
  • If the parties have not entered into a binding arbitration agreement (Fedor, 976 F.3d at 1106-07).
  • Of cases relating to sexual assault or harassment disputes under federal, state, or tribal law arising or accruing on or after March 3, 2022, unless the claimant elects arbitration (9 U.S.C. § 402(a)).
While employers generally prefer that arbitrators determine most arbitrability issues, they may benefit from having a court decide the issue of class waiver enforceability (see Deciding Class Arbitrability). If any delegation is contrary to the rules of the arbitral forum or conflicts with another delegation provision, the agreement should acknowledge those conflicts and state that this delegation is intentional, notwithstanding the other rules or provisions.
For sample language reserving the court's authority to determine the enforceability of class action waivers, see Standard Document, Mutual Agreement to Arbitrate Employment-Related Disputes (US): Waiver of Class and Collective Actions.
For more on arbitrability determinations generally, see Practice Notes, Arbitrability Issues in US Arbitration: Determination by a Court or Arbitrator and Judicial or Arbitral Determination of Class Arbitrability Case Tracker.

Wholly Groundless Analysis Rejected

When analyzing arbitrability, some courts previously held that the court must conduct a limited review of the parties' agreement even if the parties clearly and unmistakably delegate arbitrability issues to the arbitrator to ensure that the assertion of arbitrability is not "wholly groundless." The wholly groundless doctrine was first articulated by the Federal Circuit Court of Appeals, recognizing the impracticality and inefficiency of sending a clearly non-arbitrable dispute to arbitration that is likely to result in:
  • The arbitrator dismissing it.
  • The parties returning to court to resolve their dispute in the judicial forum.
(See, for example, Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1371 (Fed. Cir. 2006).)
The Eleventh Circuit and most other circuits to consider the issue rejected the wholly groundless doctrine when enforcing arbitration agreements that contain a clear intent to arbitrate gateway issues (Jones v. Waffle House, Inc., 866 F.3d 1257, 1268 (11th Cir. 2017) (rejecting wholly groundless exception and summarizing circuit split)).
In a unanimous decision, the US Supreme Court resolved the circuit split and rejected the wholly groundless doctrine as inconsistent with the FAA. The court held that the courts must respect the parties' decision as embodied in their contract to delegate the issue of arbitrability to the arbitrator even if the argument for arbitrability is wholly groundless. (Henry Schein, Inc., 139 S. Ct. at 529-31.)
For more on arbitrability, see Practice Notes, Arbitrability Issues in US Arbitration: Determination by a Court or Arbitrator: The "Wholly Groundless" Approach to Determining Arbitrability and Judicial or Arbitral Determination of Class Arbitrability Case Tracker.

An Interlocutory Appeal Under Section 16(a) of the FAA Automatically Stays District Court Proceedings

In Coinbase v. Bielski, the US Supreme Court held the district court must stay proceedings while an interlocutory appeal on arbitrability is ongoing. Although not arising in the employment context, the Court noted that without a stay of the trial court proceedings:
  • The right to an appeal would be "largely nullified" and many asserted benefits of arbitration, such as efficiency, reduced costs, and more limited discovery) would be lost.
  • The parties may be forced to settle to avoid the court proceedings and lose the benefit of their contractual bargain.
(143 S. Ct. 1915, at *1919-21 (2023).)

Selecting Arbitral Forum and Rules

Because parties are free to chart their own procedural course in arbitration, employers should specify in the arbitration agreement their preference about:
  • The arbitral forum, including the geographic location.
  • The precise scope of authority granted to the arbitrator.
  • Any limits on the arbitrator's authority, such as whether the arbitrator must follow the Federal Rules of Evidence (FRE) or other procedural rules.
  • Minimum qualifications of the arbitrator.
  • The scope of allowable discovery (see Discovery).
  • Motion practice (see Dispositive Motions).
  • Confidentiality of the proceedings (see Confidentiality of Proceedings).
In some cases, the parties agree to abide by certain arbitration procedures by incorporating the rules of a specific arbitral organization, such as the AAA. If designating procedures by incorporating an organization's rules, the agreement should specify what version of the rules apply, such as the AAA Employment Arbitration Rules in effect at the time of the arbitration demand, or the mass claims or multiple case filing rules of an arbitral forum (see Serial or Mass Individual Arbitrations). Regardless of the procedures selected, the parties should designate rules or other procedures with sufficient specificity to avoid arguments that the parties have not had a meeting of the minds about the procedures that are replacing those in the judicial forum they have waived.
For more on the procedural rules applicable to employment arbitrations before the AAA and other arbitral authorities, see Practice Notes:
Arbitration agreements should specify the rules governing the arbitration process and either or both:
  • Attach a copy of the rules to the arbitration agreement.
  • Notify the employee where to find the most recent version of the rules or including a link to the rules in an electronically transmitted agreement.
For added protection, employers may specify a process for selecting an arbitration forum if the designated arbitral institution becomes unavailable for any reason. The failure to specify a forum or provide a mechanism for selecting one may result in litigation about whether the parties assented to arbitration (compare, for example, Flanzman v. Jenny Craig, Inc., 236 A.3d 990 (N.J. 2020) (reversing the appellate court's holding that the failure to identify mechanism for selecting arbitral forum invalidated arbitration agreement for lack of assent; because the New Jersey Arbitration Act provides a mechanism for selecting a forum and conducting arbitration where the parties have not specified one, the parties entered into a binding arbitration agreement) with Rittmann, 971 F.3d at 919-21 (arbitration agreement was unenforceable where contract provided that FAA governed the dispute but the plaintiffs were exempt from the FAA under transportation workers' exception, and no other law governed the parties' agreement)).

Discovery

The scope of discovery in arbitration is generally more limited than in court proceedings. While the parties are free to contract for limited discovery, an agreement that deprives an employee of a fair opportunity to vindicate a substantive statutory right may be challenged as unconscionable. Merely limiting the scope of discovery in arbitration is not a sufficient basis to invalidate an agreement to arbitrate (Gilmer, 500 U.S. at 31; Sanchez v. Carmax Auto Superstores Cal., LLC, 224 Cal. App. 4th 398, 404-06 (2014)).
Courts generally have held that where the arbitrator has the power to order any discovery necessary for a party's fair opportunity to present a claim or defense the arbitration agreement may be enforced (see Guyden v. Aetna, Inc., 544 F.3d 376, 386-87 (2d Cir. 2008); Discipio v. Anacorp, Inc., 831 F. Supp. 2d 392, 401 (D. Mass. 2011)). In choosing arbitral rules, employers generally should ensure that the rules authorize the arbitrator to order sufficient discovery or specify that the arbitrator has this power in the arbitration agreement.
Arbitration under the AAA's Employment Arbitration Rules & Mediation Procedures adequately protects an employee's right to discovery (see, for example, Cole, 105 F.3d at 1482). The AAA rules, for example, provide that "[t]he arbitrator shall have the authority to order such discovery, by way of deposition, interrogatory, document production, or otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the expedited nature of arbitration" (AAA Employment Rules, Rule 9). The phrase "consistent with the expedited nature of arbitration" expresses an understanding that discovery in arbitration is not as wide-ranging as discovery in federal litigation.
Employers should be aware that many state procedural laws impose more limits on discovery than federal law. For state-specific resources, see State Employment Litigation and Arbitration Toolkit: State-Specific Resources.

Dispositive Motions

The right to bring dispositive motions is generally more limited in arbitration than in court. This is one of the drawbacks of arbitration for employers, as employers often can dispose of meritless or weak employee claims by a motion to dismiss or for summary judgment.
Parties theoretically may specify rules for motions as desired, though in practice they may be limited by the rules of the arbitral forum or arbitrator preferences. The arbitral authorities differ on their approach to motions. For example, the AAA Employment Arbitration Rules require a party to request permission to file a dispositive motion and demonstrate that the motion is meritorious (AAA Employment Rule 27; JAMS Employment Rules & Proc. Rule 18; see also Practice Notes, Dispositive Motions in US Arbitration and AAA Employment Arbitration: a Step-By-Step Guide: Dispositive Motions). To modify this requirement, employers can incorporate a provision in their arbitration agreements specifically granting the arbitrator the authority to hear and grant dispositive motions without requiring a preliminary showing on the merits.
In arbitrations under the FINRA Code of Arbitration Procedure Rules for Industry Disputes (Industry Code Rules), arbitrators are discouraged from granting dispositive motions and parties may only file motions to dismiss on limited specified grounds. FINRA's Industry Rules do not authorize motions for summary judgment. (Industry Code Rule 13504; see also FINRA Limitations.)
For more on dispositive motions in arbitration, see:

Limiting Arbitral Authority

Because arbitrators are more flexible than courts in applying the law, and the grounds for challenging an arbitration award under the FAA are so limited (see 9 U.S.C. § 10), employers may want to impose limits on an arbitrator's authority to issue certain relief. For example, an employer may want to prohibit an arbitrator from awarding punitive damages on non-statutory claims (see Punitive Damages in Arbitration).
Employers also may benefit from expressly limiting an arbitrator's authority to issue any award that is inconsistent with or disregards an employee's at-will employment status, as affirmed in an employment agreement or handbook. This provision may be especially valuable to employers in those jurisdictions that do not recognize "manifest disregard of the law" as a basis for challenging arbitration awards, and instead require a showing that an arbitrator exceeded the authority granted by the parties' arbitration agreement. (See, for example, Gherardi v. Citigroup Glob. Mkts. Inc., 975 F.3d 1232 (11th Cir. 2020) (concluding that arbitrator did not exceed authority by issuing an award for wrongful termination despite clear at-will language in the parties' agreement and employment handbook because the parties agreed to arbitrate all claims between them); Warfield, 26 F.4th 666, 670-74 (reversing finding of manifest disregard of North Carolina's at-will presumption where arbitrator was presented with authority implying just cause employment from existence of arbitration agreement)). By expressly restricting the arbitrator’s authority, a court more likely may find that arbitrators who award relief despite the restriction exceeded their powers within the meaning of the FAA (9 U.S.C. § 10(a)(4)).
For sample language defining the arbitrator's authority, see Standard Document, Mutual Agreement to Arbitrate Employment-Related Disputes (US): Mandatory Arbitration. For more on the grounds for challenging arbitration awards, see Challenging Arbitral Awards in Court.

Provisional Remedies

Federal courts may consider a motion for an injunction in aid of arbitration, such as a motion for a preliminary injunction or temporary restraining order (TRO) under FRCP 65 or pursuant to FRCP 64, which incorporates state law (Alvenus Shipping Co., Ltd. v. Delta Petroleum (U.S.A.) Ltd., 876 F. Supp. 482, 487-88 (S.D.N.Y. 1994)). Federal courts apply the law of the state where they sit (FRCP 64).
Under the AAA Rules, arbitrators have the power to grant interim relief (AAA Employment Arbitration Rules, R-32). To provide for the right to seek provisional relief from an emergency arbitrator at the outset of the case and before the merits arbitrator is appointed, some employers incorporate the AAA's Employment Arbitration Rules, including the Optional Rules for Emergency Measures of Protection (see Practice Note, AAA Employment Arbitration: a Step-By-Step Guide: Emergency Measures of Protection and Interim Orders). These remedies are available in arbitration only if the parties have specifically agreed to the Optional Rules either in:
  • The arbitration agreement.
  • A separate agreement.
Under these rules, the AAA appoints a single emergency arbitrator within one business day of receiving the request for interim relief. The emergency arbitrator's powers stop once the regular arbitrator is appointed. To issue an interim award, the emergency arbitrator must be satisfied that immediate and irreparable loss or damage may result in the absence of emergency relief and that the party seeking this relief is entitled to it. (AAA Employment Arbitration Rules, O-1, O-2, O-4.)

Confidentiality of Proceedings

Although arbitration is private, it is not automatically confidential. Parties to an arbitration generally may publicize the proceedings and certain information learned during the arbitration unless institutional arbitration rules, applicable state law, or the parties' agreement require the parties to keep the arbitration proceedings confidential.
The FAA and most state arbitration statutes do not address confidentiality and arbitral forum rules differ about confidentiality (see AAA, JAMS, and CPR Comparison Chart for US Domestic Arbitrations: Confidentiality). Because arbitration is governed by contract, employers may structure their arbitration agreements to require confidentiality of the arbitration proceedings (Practice Note, Confidentiality in US Arbitration: Confidentiality Required by an Arbitration Agreement).
Like other arbitration provisions, confidentiality provisions have been subject to challenge on the grounds that they:

Class and Collective Action Waivers

One of the key perceived benefits for employers entering into arbitration agreements with their employees is the ability to require arbitration of all disputes between them on an individual basis, rather than as a class or collective action. Because of the fundamental differences between class and individual arbitration, the parties must specifically agree to arbitrate on a classwide basis. Neither silence nor ambiguity on the issue is sufficient to express the parties' agreement to class arbitration. (Lamps Plus, 139 S. Ct. at 1419; Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 684-87 (2010).)
Before the Supreme Court's decision in Epic Systems, there was much debate about the enforceability of class and collective action waivers in employment arbitration agreements (compare, for example, Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015) (holding that class action waivers were enforceable), with Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016) and Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016) (holding that agreements with concerted action waivers violated the NLRA). The NLRB had taken the position that class arbitration waivers were unenforceable under the NLRA because the waivers interfered with employees' rights to engage in protected concerted activity (D.R. Horton Inc., 357 N.L.R.B. No. 184 (2012)).
In Epic Systems, the court resolved the circuit split in favor of enforceability and held that the mandatory arbitration agreements with class and collective action waivers:
  • Were enforceable according to their terms, subject to traditional contract defenses.
  • Did not violate an employee's right to engage in concerted protected activity under the NLRA, and that the FAA does not conflict with the NLRA.
(138 S. Ct. at 1622-24, 1632.)
After Epic Systems, it was commonly thought that employers opting for arbitration would generally benefit from including a class and collective action waiver because they were clearly enforceable. However, recent legal developments and tactics by plaintiffs counsel have caused some to rethink this issue (though most employers counsel still generally favor arbitration agreements to some degree). Employers should analyze their specific circumstances before including those waivers or implementing an arbitration program (see Post-Epic Systems Developments).
For more information on class arbitration waivers, see:

Post-Epic Systems Developments

Employers must carefully evaluate the benefits of including class action waivers, and arbitration in general, in light of several key post-Epic Systems developments.

Epic System Applied to NLRA and FLSA Claims

The NLRB has acknowledged the Epic Systems decision and no longer contends that class and collective waivers in arbitration agreements are unenforceable (see NLRB: Supreme Court Issues Decision in NLRB v. Murphy Oil USA (May 21, 2018)). The NLRB more recently held as a matter of first impression that employers are not prohibited under the NLRA from:
  • Informing employees that failing or refusing to sign a mandatory arbitration agreement will result in their discharge.
  • Implementing mandatory arbitration agreements in response to employees opting in to a collective action.
(Cordúa Rests., Inc., 368 N.L.R.B. No. 43 (Aug. 14, 2019); see also Tarlton & Son, Inc., 368 N.L.R.B. No. 101 (Oct. 30, 2019) (employer lawfully promulgated a mutual arbitration policy in response to employees' joint filing of a California state wage and hour claim).)
The Sixth Circuit has applied Epic Systems' reasoning and concluded that collective action procedures under the Fair Labor Standards Act (FLSA) do not override or conflict with the FAA. In Gaffers v. Kelly Services, Inc., the court enforced an arbitration agreement requiring individualized arbitration of FLSA claims. Significantly, the court cited Epic Systems for the proposition that one of arbitration's "fundamental attributes is its historically individualized nature." (900 F.3d 293, 296-97 (6th Cir. 2018).)
The Sixth Circuit also confirmed that Epic Systems applies to bar class and collective actions on behalf of independent contractors (McGrew v. VCG Holding Corp., 735 F. App'x 210, 211 (6th Cir. 2018) (refusing to conditionally certify a class or send class notice where independent contractors had entered into arbitration agreements)).

Impact on Class Notice to Individuals with Arbitration Agreements

Recent authority suggests that employers that have binding arbitration agreements with their workers may limit the scope of notice sent in a class or collective action. In In re JPMorgan Chase & Co., the Fifth Circuit held that the district court erred in ordering that notice of collective action be sent to employees who signed valid arbitration agreements because they were not "potential plaintiffs" in the litigation (916 F.3d 494, 500-03 (5th Cir. 2019) (noting that the plaintiffs did not contest the agreements' existence or validity); see also Compere v. Nusret Miami, LLC, 391 F. Supp. 3d 1197, 1205 (S.D. Fla. 2019)).
Similarly, in Bigger v. Facebook, Inc., the Seventh Circuit held that a court may not authorize class notice to individuals who entered mutual arbitration agreements waiving their right to join the action. The court detailed the appropriate analytical framework for making this determination. The court must:
  • Determine whether any proposed notice recipients contests the existence or validity of the arbitration agreements.
  • If contested, allow the employer to demonstrate by a preponderance of the evidence the existence of valid arbitration agreements.
(Bigger v. Facebook, Inc., 947 F.3d 1043, 1047 (7th Cir. 2020); but see Clark v. A&L Homecare and Training Ctr, LLC, 68 F.4th 1003, 1011-12 (6th Cir. 2023) (district courts should not determine whether absent class members have agreed to arbitrate claims before authorizing class notice).)
In contrast, several district courts outside the Fifth and Seventh Circuits allowed notices to be sent at the conditional certification stage to potential opt-in plaintiffs who may be parties to arbitration agreements, reasoning that it is inappropriate to determine the enforceability of these agreements at the conditional certification stage (see Barone v. LAZ Parking Ltd., , at *3-6 (D. Conn. Oct. 20, 2019) (summarizing split of authority and explicitly rejecting the Fifth Circuit's reasoning in JP Morgan Chase)).

Arbitration Agreements with Putative Class Members in Pending Litigation

Employers must be wary of entering into arbitration agreements with putative class members in a pending lawsuit. One federal district court granted the employees' motion to invalidate arbitration agreements with class and collective action waivers where:
  • The employer implemented a new arbitration program requiring plaintiffs to sign arbitration agreements as a condition of their continued employment.
  • At the time of the rollout, plaintiffs were putative class members in a pending wage and hour class and collective action under federal and state law.
  • The employer's communications about the program were misleading and did not explain that by entering into the new arbitration agreements the plaintiffs were waiving their right to participate in the class proceedings.
  • Epic Systems did not preclude a finding that the arbitration agreements were unconscionable under the circumstances.
(O'Conner v. Agilant Solutions, Inc., 444 F. Supp. 3d 593 (S.D.N.Y. 2020); see also Salazar v. Driver Provider Phoenix LLC, 532 F. Supp. 3d 832, 837-39 (D. Ariz. 2021) (refusing to enforce arbitration agreements against putative class members in pending litigation where communications about arbitration agreements were coercive and misleading); Degidio v. Crazy Horse Saloon & Rest. Inc., 880 F.3d 135 (4th Cir. 2018) (arbitration provisions in lease agreements entered into during pendency of exotic dancers' class action lawsuit were unenforceable)).
In contrast, the Southern District of New York in Chen-Oster v. Goldman, Sachs & Co. refused to invalidate arbitration agreements entered into with putative class members the during the pendency of a class discrimination suit. The court analyzed whether defendants' actions were coercive or deceptive based on a totality of the circumstances, considering factors such as:
  • The relative vulnerability of the putative class members.
  • The evidence of actual coercion or conditions conducive to coercion.
  • Whether the defendant employer purposefully targeted putative class members to narrow the class.
  • Whether the arbitration provision was unilaterally imposed on the putative class.
  • Evidence of misleading conduct, language, or omissions, including whether the agreement mentions the pending class action.
(449 F. Supp. 3d 216, 263-64 (S.D.N.Y. 2020) (finding no coercion where employees were sophisticated finance professionals who received substantial benefits beyond continued employment for entering into agreements and employer did not target class members)).

Serial or Mass Individual Arbitrations

One unintended consequence of Epic Systems and other post-Epic pro-arbitration decisions from the Supreme Court is that employers now face an increased risk serial or mass individual arbitrations when an agreement bars class arbitration of a claim otherwise suitable for class treatment. Rather than challenge the class action waivers, some savvy plaintiffs' counsel have filed tens, hundreds, and even thousands of serial arbitration claims. These can be administratively burdensome and costly to the employer that generally bears the arbitration costs.
Two decisions from the Northern District of California illustrate this backlash against employers requiring class action waivers. In Abernathy v. DoorDash, Inc., the plaintiffs were drivers claiming they were misclassified as independent contractors. Most drivers had signed arbitration agreements with a class action waiver as a condition of driving for DoorDash. The applicable arbitration rules required the drivers to pay a filing fee of $300 and DoorDash to pay a filing fee of $1,900 for each arbitration. The drivers moved to compel more than 5,000 individual arbitration proceedings. The judge ultimately granted the motion to compel arbitration and ordered DoorDash to pay more than $9 million in arbitration filing fees. (438 F. Supp. 3d 1062, 1065-66 (N.D. Cal. 2020).)
The judge's cautionary tale for employers bears repeating:
The irony, in this case, is that the workers wish to enforce the very provisions forced on them by seeking, even if by the thousands, individual arbitrations, the remnant of procedural rights left to them. The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration. Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate. This hypocrisy will not be blessed, at least by this order.
(DoorDash, 438 F. Supp. 3d at 1067-68.)
In Adams v. Postmates, Inc., the court was similarly unsympathetic to the employer's plight and refused to stay the proceedings pending Postmates' appeal of the order compelling more than 5,000 individual arbitrations. The court rejected Postmates' claim of irreparable harm resulting from more than $10 million in arbitration filing fees, and chastised Postmates for challenging the class action waivers they created. As the court noted, the arbitration fees were a "direct result" of an agreement:
… which Postmates drafted and which Postmates required each courier to sign as a condition of working for Postmates. It strains credulity for Postmates to argue that the amount of filing fees due constitute irreparable harm when that 'harm' is entirely of its own making.
(, at *6 (N.D. Cal. Mar. 5, 2020); see also McClenon v. Postmates, Inc., 473 F. Supp. 3d 803 (N.D. Ill. 2020) (granting motion to compel arbitration of 200 individual couriers, but leaving arbitrator to decide whether this constitutes a de facto class arbitration not authorized by the parties' agreement).)

Multi-Party and Mass Arbitration Protocols

To mitigate the risks of multiple arbitral proceedings, employers may consider choosing an arbitral forum with specific procedures addressing mass arbitrations. For example:
  • The International Institute for Conflict Prevention and Resolution (CPR) adopted the CPR Employment-Related Mass Claims Protocol (Mass Protocol), effective September 29, 2021, and updated in September 2022 (Version 2.1), to streamline administration, encourage settlement, and decrease the cost of large volume filings involving similar claims against the same employer. The Mass Protocol encourages the efficient disposition of a large volume of similar cases by providing a mediator with anonymized arbitration awards from a handful of early test cases from the group to achieve a process for globally settling the remaining cases.
    The Protocol may apply when 30 or more "employment-related arbitration cases of a nearly identical nature" are filed with the CPR. For the Protocol to apply, the employer must specifically reference it in their arbitration agreement and provide the employee with access to it before they sign the agreement (CPR: Employment Disputes). The Protocol may be found here. For more on the mass claims protocol, see:
  • The AAA developed Supplementary Rules for Multiple Case Filings (Multi-Case Rules) (effective August 1, 2021, as amended and updated effective January 15, 2024) to streamline the administration and decrease the cost of large volume filings involving the same or related parties and party representatives in employment and consumer cases. The AAA Multi-Case Rules may be triggered by 25 or more arbitration demands raising the same or similar issues filed against the same party or related parties. The claimants must be represented by the same or related counsel and the parties must agree to these procedures. (Multi-Case Rule MC-1(a)-(c).) For more on arbitrating cases under these rules, see Practice Note, AAA Multi-Case Arbitration: A Step-by-Step Guide.

Class Waivers Regarding Sexual Assault or Sexual Harassment Claims Unenforceable

Under the EFAA, a predispute joint-action waiver, including a class or collective action waiver, in a case or other proceeding relating to a sexual assault or sexual harassment dispute is, at the claimant's election, invalid and unenforceable (9 U.S.C. § 402(a)). Employers therefore should consider carving out sexual assault and sexual harassment claims from the scope of any class or collective action waiver or, at a minimum, be prepared not to enforce them.

Deciding Class Arbitrability

Most federal courts have held that the availability of class or collective proceedings in arbitration is a fundamental gateway issue presumptively for the courts to decide, unless the parties clearly delegate this authority to the arbitrator (20/20 Comms. Inc. v. Crawford, 930 F.3d 715,718-19 (5th Cir. 2019); Herrington, 907 F.3d at 508-09 (joining other federal appellate courts in holding this determination is a threshold question of arbitrability for the court)). The Supreme Court has decided that the parties' intent about whether to allow class arbitration cannot be inferred from silence or ambiguity, but has not specifically addressed who decides the availability of class arbitration (Lamps Plus, Inc., 139 S. Ct. at 1416-17).
If addressing class arbitrability in the context of a sexual assault or sexual harassment dispute, the EFAA requires that the court decide this issue, regardless of whether the agreement purports to delegate arbitrability to the arbitrator (9 U.S.C. § 402(b)).
In other contexts, some courts have held that a clear delegation to the arbitrator of arbitrability issues allows the arbitrator to decide whether an arbitration clause authorizes classwide arbitration. The US Court of Appeals for the Second Circuit has held that a delegation to an arbitrator to make this determination is sufficient to bind absent class members who have entered into similar agreements (Jock v. Sterling Jewelers Inc., 942 F.3d 617 (2d Cir. 2019)).
In an unpublished opinion, the Ninth Circuit addressed the parties' delegation to the arbitrator to decide all issues, including arbitrability, except for any claim that the class waiver was "unenforceable, unconscionable, void, or voidable." The court held that a claim that the plaintiffs violated the arbitration agreement's class action waiver by filing serial arbitrations did not fall within the exception and was an issue for the arbitrator to decide. (Adams v. Postmates, Inc., 823 F. App'x. 535 (9th Cir. 2020).)
Federal appellate courts are currently split about what constitutes a "clear delegation" to the arbitrator and whether the court or the arbitrator decides the availability of classwide arbitration when:
  • The arbitration clause is silent on the issue.
  • The parties do not expressly agree that the arbitrator can decide the issue of whether the matter can proceed on a classwide basis.
Some courts have found that the parties must do more than incorporate AAA rules to delegate the determination of class arbitrability to the arbitrator. These courts include the US Court of Appeals for the:
Other courts have held that parties can indicate a clear intent to delegate the issue of class arbitrability to an arbitrator by incorporating AAA rules into their agreement. These courts include the US Courts of Appeals for the:
  • Second Circuit (Wells Fargo Advisors, 884 F.3d at 398 (rejecting the Third, Sixth, and Eighth Circuit findings and holding that incorporation of AAA rules is sufficient evidence of the parties' intent to delegate the availability of classwide arbitration); see also Jock, , at *4 (incorporating AAA rules combined with a statement that questions of arbitrability and procedural questions were to be decided by the arbitrator gave arbitrator authority to determine class arbitrability)).
  • Tenth Circuit (Dish Network L.L.C. v. Ray, 900 F.3d 1240, 1245 (10th Cir. 2018) (assuming without deciding that the availability of classwide arbitration is a gateway matter, because the parties' agreement clearly delegated this determination to the arbitrator by incorporating AAA rules)).
  • Eleventh Circuit (JPay Inc. v. Kobel, 904 F.3d 923, 936 (11th Cir. 2018) (under controlling precedent, incorporating AAA rules is a clear delegation of arbitrability)).
The US Court of Appeals for the Fifth Circuit has taken an intermediary approach. In 20/20 Communications, Inc., the court held that there was no clear delegation to the arbitrator of the gateway issues of class arbitrability where the arbitration agreement:
  • Only permitted individual arbitration.
  • Prohibited arbitrators from consolidating claims or proceeding as class arbitration to the maximum extent permitted by law.
  • Incorporated AAA rules, except where inconsistent with the agreement.
  • Delegated to the arbitrator the authority to resolve arbitrability issues, such as the formation or meaning of the agreement.
The court reasoned that the delegation provisions, when read together with the prohibition on class arbitration proceedings, did not "clearly and unmistakably" overcome the presumption that the court (not the arbitrator) decides the issue of class arbitrability. (20/20 Communs., Inc., 930 F.3d at 717-21 ("[I]t is difficult for us to imagine why parties would categorically prohibit class arbitrations to the maximum extent permitted by law, only to then take the time and effort to vest the arbitrator with the authority to decide whether class arbitrations shall be available.").)
The resolution of this debate may ultimately depend on whether proceeding on behalf of a class in arbitration is a substantive right or a procedural rule (Dish Network, 900 F.3d at 1254 (Tymkovich, C.J., concurring) (citing Epic Systems for the proposition that it is a procedural rule)). Since Epic Systems, the Supreme Court has expounded on the character of class arbitration as "markedly different" from individual arbitration, noting that it "undermines the most important benefits" of individual arbitration (Lamps Plus, 139 S. Ct. at 1415-17) (holding that courts cannot compel class arbitration where an agreement is ambiguous about the parties' intent to arbitrate on a classwide basis)).
Employers may not want delegate the determination of class waiver enforceability to the arbitrator (either intentionally or by silence) and instead have the court decide the issue because:
  • The Supreme Court has clearly decided that class waivers are generally enforceable in the context employment claims (Epic Sys., 138 S. Ct. at 1622-24).
  • Employers have a greater ability to seek appellate review of an erroneous decision in court, compared with the limited scope of review in arbitration.
  • Regardless of any delegation provision, the court (not an arbitrator) must decide the enforceability of a class or collective action waiver regarding sexual assault or sexual harassment disputes (9 U.S.C. § 402(b)).
If the delegation is contrary to the rules of the arbitral forum, or conflicts with other delegation provisions, the employer should acknowledge those conflicts and state that this delegation is intended, notwithstanding the other rules or provisions.
For recent developments on this issue, see Judicial or Arbitral Determination of Class Arbitrability Case Tracker.

Opt-Out Provisions

Before Epic Systems, employers in some jurisdictions included opt-out provisions to increase the likelihood of enforcing arbitration agreements, especially those with class action waivers. Courts in multiple jurisdictions have cited the existence of an opt-out provision in holding that an agreement was not unconscionable, although the opt-out provision alone was not dispositive.
Epic Systems made clear that a mandatory employment arbitration agreement, with or without an opt-out provision, may be enforceable according to its terms. Employers that previously included opt-out provisions in their arbitration agreements may now consider omitting them.
However, arbitration clauses still remain subject to traditional contract defenses applicable to all contracts, including unconscionability. Following Epic Systems, employees and their counsel may more aggressively pursue traditional contract defenses to defeat the arbitrability of employment-related claims. Some practitioners therefore continue to recommend using opt-out provisions to reduce unconscionability challenges, especially since employees rarely exercise the opt-out right. Opt-out provisions are especially beneficial to employers in those jurisdictions where an agreement must be both procedurally and substantively unconscionable to be unenforceable, because a meaningful opt-out provision essentially precludes a finding that the agreement is procedurally unconscionable (see, for example, Mohamed, 848 F.3d at 1210-11).

Poison Pill Provisions

Many employers prefer to litigate class or collective actions in court rather than as a class or collective arbitration to avoid potentially substantial judgments with limited rights of appeal. Before Epic Systems, some employers included a so-called poison pill provision in their arbitration agreements to avoid the possibility of class arbitration if the class waiver were deemed unenforceable. A poison pill provision states that if the class action waiver or prohibition of class arbitration is held unenforceable, then the entire agreement to arbitrate is deemed null, void, and unenforceable.
Although these provisions may no longer be necessary after Epic Systems, some employers still include them to unambiguously express an intent not to proceed with arbitration on a classwide basis. For sample traditional poison pill language, see Standard Document, Mutual Agreement to Arbitrate Employment-Related Disputes (US): Waiver of Class and Collective Actions.
However, employers in California or otherwise potentially subject to representative claims under PAGA should generally not include a poison pill provision, or at least ensure that it is coupled by a severability provision, if they want the option to arbitrate an employee's individual PAGA claim, excluding only the nonarbitrable representative PAGA claims from arbitration (Demarinis v. Heritage Commerce Bank, , at **2, 5-6 (Cal. Ct. App. 1st Dist., Dec. 11, 2023) (holding that waiver provision that included an improper waiver of the right to bring representative PAGA claims, combined with nonseverability and poison pill provisions, rendered the arbitration agreement unenforceable in its entirety)).

Consolidation of Proceedings

Courts have no power to order class or collective arbitrations under the FAA unless the parties have unambiguously contracted to do so (Lamps Plus, 139 S. Ct. at 1416-17; Stolt-Nielsen, 559 U.S. at 685-87 (holding that arbitrators exceeded their authority under the FAA by allowing class arbitration when the parties had not reached an agreement on that issue and the contract's silence on class arbitration was not evidence of the parties' intent to participate in it)). Employees who cannot bring their claims in a class action may attempt to consolidate their arbitrations to achieve economies of scale. While the FAA is silent on the consolidation of separate proceedings, some state procedural laws allow a court to order consolidation (see, for example, Cal. Civ. Proc. Code § 1281.3). To avoid any ambiguity, employers that do not want to arbitrate cases on a consolidated basis should specifically state that the arbitrator lacks the authority to consolidate the claims of multiple employees.
However, one risk of barring employees from bringing class or representative actions, or otherwise consolidating claims in arbitration, is that sophisticated plaintiffs' counsel may file multiple individual arbitration demands alleging similar claims (see Serial or Mass Individual Arbitrations). This strategy of group filings is increasingly common and damaging to employers because the employer:
  • Commonly must pay all or most of the arbitration fees, making multiple proceedings costly for the employer.
  • May be required to produce the same witness (such as a custodian of records) for deposition in multiple arbitrations.
  • Risks inconsistent results in multiple arbitration proceedings.
  • Risks being bound by adverse findings in one arbitration in later arbitrations by similarly situated employees (see Limiting the Preclusive Effect of Related Arbitrations).
Employers therefore may benefit from granting the arbitrator limited authority to make orders regarding multiple arbitrations to avoid waste and increase efficiencies. For example, where the same plaintiff's counsel files multiple arbitrations challenging the exempt classification of the same category of worker, such as assistant store managers, the employer may want to allow the arbitrator to order that the deposition of the custodian of records to be used in all arbitrations brought by similarly situated employees. Employers that want this option should ensure that either:
  • The selected arbitral rules allow for these orders or grant the arbitrator sufficient discretion to issue them.
  • The arbitration agreement expressly grants the arbitrator authority to consolidate proceedings or coordinate discovery to the extent necessary to avoid waste and increase efficiencies.
Alternatively, the employer may seek to apply protocols of an arbitral forum specifically designed for these situations (see Multi-Party and Mass Arbitration Protocols).
Effective March 3, 2022, employers cannot, however, enforce predispute agreements waiving the right to participate on a joint basis (whether in court, arbitration, or other proceedings) regarding sexual assault or sexual harassment disputes, unless it is the employee's option (9 U.S.C.§ 402(b)).

Limiting the Preclusive Effect of Related Arbitrations

Courts and arbitrators may give preclusive effect to arbitral awards based on principles of collateral estoppel or treat past awards as persuasive authority. Therefore, if an employer loses, the result in one arbitration may impact later arbitrations that raise the same issue.
Parties to an arbitration agreement may include contractual provisions to limit the estoppel effect of an award between them, though the restrictions may not be enforceable against non-parties. To limit the preclusive effect of related proceedings, employers may want to include language in their arbitration agreements stating that:
  • The issues determined in any arbitration proceeding between the employer and similarly situated employees have no preclusive effect in any arbitration under their agreement.
  • The arbitrator has no authority to give preclusive effect to issues determined in any arbitration between the employer and another individual.
While the statute is silent on the issue, it is unclear whether the EFAA will be interpreted to preclude enforcement of these provisions.
For more on issue preclusion in arbitration, see Practice Note, The Preclusive Effect of Arbitration Awards in the US.

Punitive Damages in Arbitration

Under the FAA, arbitrators have the authority to award punitive damages unless the parties' agreement limits this authority. Under some state's arbitration laws, arbitrators may lack the authority to award punitive damages. Federal statutory claims are only arbitrable if the parties do not forego the substantive rights afforded by the statute, and arbitration can serve the same remedial and deterrent functions as litigation (Gilmer, 500 U.S. at 26; Morrison, 317 F.3d at 673). A limitation on a plaintiff's potential remedies under a statutory claim, such as the right to recover punitive damages under Title VII, undermines the rights protected by the statute and is therefore unenforceable (Morrison, 317 F.3d at 674; Circuit City, 279 F.3d at 895).
Some employers may opt to limit the employee's ability to recover punitive damages on common law tort claims, such as defamation or tortious interference with contractual relations. For sample language that can accomplish this without prohibiting the recovery of punitive or other damages on statutory claims, see Standard Document, Mutual Agreement to Arbitrate Employment-Related Disputes (US): Mandatory Arbitration. For state-specific versions, see State Employment Litigation and Arbitration Toolkit: State-Specific Resources.
For more on punitive damages, see Practice Notes, Punitive Damages in US Arbitration: Punitive Damages Under Statutes and Remedies: Punitive and Liquidated Damages in Employment Discrimination Cases.

Drafting Considerations

Defining Employer

An employer seeking to compel arbitration of an employee's claims must be a party to an enforceable arbitration agreement with that employee. Where the employing entity is separate and distinct from the entity that is a party to the arbitration agreement, a court may refuse to compel arbitration of claims against the employing entity. For example, courts have refused to compel arbitration where:
  • An independent contractor provided services to a subsidiary, but the arbitration agreement was with the parent entity. The court noted that the presumption in favor of arbitrability does not apply when determining:
    • whether there is an agreement to arbitrate; or
    • who is a party to an arbitration agreement.
    (Weckesser v. Knight Enter. S.E., LLC, 735 F. App'x 816, 821 (4th Cir. 2018).)
  • The entity that entered into the arbitration agreement ceased to exist following a merger (Goplin v. WeConnect, Inc., 893 F.3d 488, 490-91 (7th Cir. 2018)). In contrast, however, a sale of an employer's stock does not change the entity's right to compel arbitration under a valid agreement where the entity continues its business operations (see, for sample, Taylor v. Dover Downs, Inc., 543 F. Supp. 3d 39, 44-45 (D. Del. 2021)).
  • An employee entered into an arbitration agreement with the parent company of the employee's employer and the agreement described an employment relationship that did not exist (Ahlstrom, 21 F.4th at 636 (noting that the employer never claimed that the employee had an employment relationship with the parent entity)).
  • An employee entered into an arbitration agreement with the sibling company of the employee's employer (Abdurahman v. Prospect CCMC LLC, 42 F.4th 156, 160-62 (3d Cir. 2022) (rejecting employer's argument that court should compel arbitration based on agency principles and equitable estoppel)). The court also refused to compel arbitration of the employee's claims because the arbitration agreement covered claims arising out of the employment relationship with the employer's sibling company, an entity that never employed the employee (Abdurahman, 42 F.4th at 162-63).
If the agreement defines the employer as including all "present and future parents, subsidiaries, affiliates, successors, and assigns," a successor by merger or other affiliated entity may be able to enforce the arbitration agreement (Dawson v. Rent-A-Center, Inc., 490 F. App'x 727, 729-30 (6th Cir. 2012)). The arbitration agreement should define the employer broadly enough so that if there is a corporate transaction, such as a merger or asset purchase, or an intracompany transfer of the employee's employment, the employing entity is a party to the agreement and can compel arbitration of any covered claims.
Employers also should:
  • Accurately identify the employing entity in the agreement and broadly define the employer to include subsidiary employers (see, for example, Patten v. AVDG, LLC, , at *4 (D.N.H. Apr. 12, 2022) (compelling arbitration where agreement with parent required arbitration with it and "its subsidiary employers")).
  • Include a separate successors and assigns clause to enhance the ability to compel arbitration following a corporate transaction.
  • Ensure that potential individual defendants, such as officers, directors, managers, and supervisors, are encompassed in the definition of employer and that claims against each of them are covered, though in some circumstances a non-signatory individual defendant may be able to compel arbitration (see, for example, Morgan v. Ferrellgas, Inc., 8 F.4th 795 (8th Cir. 2021)).

Covered Claims

The party seeking to compel arbitration must demonstrate a clear and unequivocal agreement to arbitrate the dispute at issue. A party cannot be compelled to submit claims to arbitration unless the agreement to arbitrate expressly and unequivocally encompasses the subject matter of the dispute. (AT&T Tech., Inc. v. Commc'ns. Workers of Am., 475 U.S. 643, 648-49 (1986).)
Employers generally should ensure that the agreement covers all claims arising out of or related to the employment relationship and the termination of that relationship that can be arbitrated as a matter of applicable federal law. Although US courts generally interpret the scope of arbitration agreements broadly, unnecessarily restrictive language can lead to disagreements over which disputes are arbitrable. For example, the expression "arising out of or relating to this agreement" may seem redundant, but a court may find a dispute non-arbitrable if the phrase "relating to" is not included. The Second Circuit has denied the arbitration of employment discrimination claims where the arbitration clause required the arbitration of disputes "arising under this Agreement" but did not include language requiring arbitration of any dispute arising in connection with employment (White v. Cantor Fitzgerald, L.P., 393 F. App'x 804, 806-07 (2d Cir. 2010); see also Lebanon Chem. Corp. v. United Farmers Plant Food, Inc., 179 F.3d 1095, 1100 (8th Cir. 1999)).
Employers also should specify that the agreement covers other issues and defenses related to covered claims. The Sixth Circuit recently held in an unpublished opinion that the former employee defendant was not required to arbitrate their defenses where the arbitration agreement only covered "rights, causes of action, and claims" (Total Quality Logistics, LLC v. Traffic Tech, Inc., (6th Cir. Feb. 6, 2023) (defendant's unclean hands defense to restrictive covenant enforceability alleging improper pay practices was not arbitrable)).
While it is not necessary to identify every potential statutory claim, doing so may tip the scales in favor of arbitrability of specific claims or avoid disputes about the scope of coverage. For example, employers may want to specifically define covered claims to include:
Subject to the restrictions on the enforceability of certain predispute arbitration agreements (see Claims Related to Sexual Harassment or Assault), employers also should ensure that the agreement covers past, current, and future claims because courts have interpreted certain arbitration agreements to apply only to prospective claims (see, for example, Holick v. Cellular Sales of N.Y., LLC, 802 F.3d 391, 396-99 (2d Cir. 2015); Newbanks v. Cellular Sales of Knoxville, Inc., 548 F. App'x 851, 855 (4th Cir. 2013)).

Claims Not Covered

Certain types of claims are generally not subject to arbitration, such as:
To reduce the likelihood of unconscionability challenges, employers may benefit from excluding non-arbitrable claims from the scope of the arbitration agreement and specifying that the employee is not prevented from bringing these types of claims.
Some employers may prefer to only require arbitration of a limited class of claims, such as wage and hour and misclassification disputes, to avoid disputes about claims that potentially are not arbitrable (see Box, State-Level #MeToo and Other Laws Restricting Mandatory Arbitration of Sexual Harassment Claims).

NLRB Challenges

Following Epic Systems, the NLRB retreated from its prior position that employment arbitration agreements with class action waivers were inconsistent with the NLRA and therefore unenforceable (see NLRB: Supreme Court Issues Decision in NLRB v. Murphy Oil USA (May 21, 2018)). However, in a subsequent unanimous Board decision, the NLRB found that provisions mandating arbitration as the sole forum for resolving all employment-related claims impermissibly interfere with employees' Section 7 rights under the NLRA. The Board found that there was no legitimate justification that outweighs the interference, an issue not addressed by Epic Systems. The offending agreement did not address NLRA claims and did not carve out an employee's right to bring an unfair labor practice (ULP) before the Board. (Prime Healthcare Paradise Valley, LLC, 368 N.L.R.B. No. 10 (June 18, 2019); see also, Beana Beauty Hldg., Inc., 368 N.L.R.B. No. 91 (Oct. 8, 2019) (invalidating agreement that contained carve-out from arbitration for workers' compensation and unemployment benefits claims, but not for filing charges with NLRB or administrative charges generally).)
The NLRB also held that an arbitration provision allowing employees to file administrative charges with agencies such as the NLRB or the EEOC but waiving the right to monetary recovery in those proceedings violates the NLRA (Kelly Servs., Inc., 368 N.L.R.B. No. 130 (Dec. 12, 2019); 20/20 Comms., Inc., 369 N.L.R.B. No. 119 (July 15, 2020) (savings clause allowing employees to file administrative actions was inadequate because employees also waived the right to monetary recovery in those proceedings)).
The NLRB has held, however, that agreements containing an unconditional and explicit exclusion of NLRA claims from the scope of arbitration do not violate the NLRA (see Bloomingdales, Inc., 369 N.L.R.B. No. 8 (Jan. 21, 2020)).
To avoid these challenges, employers generally should:
  • Not include NLRA claims within the scope of coverage of an arbitration agreement.
  • Clearly state that nothing in the agreement prohibits employees from filing a charge with the NLRB or obtaining all available remedies in those proceedings.
  • Avoid generic carveouts for an employee's ability to file administrative claims that conflict with the agreement's coverage provisions (see, for example, GC Servs. Ltd. P'ship, 369 N.L.R.B. No. 133 (July 24, 2020)).
The NLRB also has held that an arbitration agreement requiring confidentiality of the arbitration proceedings does not violate the NLRA, reversing prior decisions that held otherwise (see Confidentiality of Proceedings).
However, to the extent that these decisions relied on the categorical analysis of workplace rules set forth in Boeing Company, 365 N.L.R.B. No. 154 (Dec. 14, 2017), that analysis no longer reflects the NLRB's views (see Article, The NLRB's New, Developing Standard for Assessing Lawfulness of Work Rules). For more on the NLRB's historical treatment of arbitration agreements under Boeing, see The NLRB's Boeing Categories for Employment Rules Chart: Arbitration Rules.

EEOC Challenges

The EEOC has been challenging arbitration agreements for many years. In a 1997 Policy Statement, the EEOC expressed the view that mandatory arbitration agreements as a condition of employment are "inconsistent with the civil rights laws" and harm both the "individual civil rights claimants and the public interest in eradicating discrimination." The EEOC viewed the courts as critical to the development of civil rights law and precedent, and stated that arbitration agreements deprived employees of that access. (EEOC Policy Statement No. 915.002 (July 10, 1997) (rescinded).)
The EEOC had also taken the position that mandatory arbitration agreements violated an employee's right under Title VII to file discrimination charges with the EEOC or an analogous state-level agency (see EEOC Sues Doherty Enterprises Over Mandatory Arbitration Agreement). However, the Supreme Court held that an employee's arbitration agreement does not prevent the EEOC from bringing a discrimination lawsuit on behalf of employees who have signed arbitration agreements because, among other reasons, the EEOC:
  • Is not a party to the arbitration agreement.
  • Has the exclusive authority to bring an enforcement action based on a timely filed charge.
(Waffle House, 534 U.S. at 288-296.)
Given this and other more recent Supreme Court authority further confirming an employer's right to require employees to arbitrate employment-related claims, on December 16, 2019, the EEOC rescinded its 1997 Policy Statement because it conflicted with current law (EEOC: Rescission of Mandatory Binding Arbitration of Employment Discrimination Disputes as a Condition of Employment). It is unclear whether the EEOC will issue new guidance given the enactment of the EFAA.
The existence of a binding arbitration agreement also may impact whether:

FINRA Limitations

Certain financial services employees regulated by FINRA and the SEC agree to arbitrate most employment-related disputes with their employers before FINRA as a condition of employment. The FINRA Code of Arbitration Procedure for Industry Disputes (Industry Code) governs these arbitrations (FINRA R. IM-13000 to 13905; see Practice Note, FINRA Industry Arbitration: A Step-by-Step Guide: Promissory Note Proceedings and Statutory Employment Discrimination Claims).
Certain employment claims are not arbitrable under FINRA rules, including:
(FINRA R. 13204.)
Other disputes, such as employment discrimination claims and certain whistleblower claims, are not subject to FINRA's mandatory arbitration requirements, but the parties can voluntarily agree to arbitrate these claims in certain circumstances. For example:
For more on FINRA arbitration see Practice Note, Key Employment Law Issues for Financial Services Employers: FINRA Industry Arbitration of Employment Disputes and FINRA Arbitration Toolkit.

Whistleblower Claims Under SOX and Dodd-Frank

The Dodd-Frank Wall Street Protection Act (Dodd-Frank) amended Section 806 of the Sarbanes-Oxley Act (SOX) to clearly prohibit the mandatory arbitration of SOX whistleblower retaliation claims, stating that:
No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.
(18 U.S.C. § 1514A(e)(2).)
Dodd-Frank Sections 748 and 1057 contain similar language about the validity and enforceability of agreements requiring arbitration of disputes arising under those sections, with a limited exception for arbitration provisions in CBAs (7 U.S.C. § 26(n)(2); 12 U.S.C. § 5567(d)(2)).
The US Court of Appeals for the Second and Third Circuits have held that retaliation claims arising under Section 922 of Dodd-Frank are arbitrable because that section lacks any similar language prohibiting predispute arbitration (15 U.S.C. § 78u-6(h); Daly v. Citigroup, Inc., 935 F.3d 415, 422-25 (2d Cir. 2019); Khazin v. TD Ameritrade Holding Corp., 773 F.3d 488 (3rd Cir. 2014)). Almost all district courts in other circuits to consider the issue have reached the same conclusion (see Practice Note, Whistleblower Protections Under Sarbanes-Oxley and the Dodd-Frank Act: Arbitration of Whistleblower Claims).
Courts generally do not invalidate the remainder of an arbitration agreement for failure to exclude these claims from its scope (see Khazin, 773 F.3d at 492; Santoro v. Accenture Fed. Servs., LLC, 748 F.3d 217, 223-24 (4th Cir. 2014); see also Legal Update, Dodd-Frank Whistleblower Provisions Do Not Override FAA Arbitration Mandate for Non-Whistleblower Claims: Fourth Circuit).
If a plaintiff brings claims under both Section 806 of SOX and Section 922 Dodd-Frank, the employer may have to arbitrate the Dodd-Frank claim while simultaneously litigating the SOX claim (see, for example, Wussow v. Bruker Corp., , at *7-9 (W.D. Wisc. June 28, 2017) (compelling arbitration of Dodd-Frank claim while denying motion to stay parallel litigation of SOX claim)). Employers may therefore want to either:
  • Exclude both SOX and Dodd-Frank whistleblower claims from the scope of their arbitration agreements.
  • Exclude from arbitration any Dodd-Frank retaliation claims that are brought simultaneously or together with SOX claims that are not arbitrable.
Other whistleblower statutes preclude mandatory predispute arbitration using language similar to SOX (see, for example, (31 U.S.C. § 5323(j) (Anti-Money Laundering Act); (26 U.S.C. § 7623(d)(5) (Taxpayer First Act)).
However, claims arising under other whistleblower statutes may be arbitrable if the statute does not preclude predispute arbitration agreements (see, for example, Robertson v. Intratek Computer, Inc., 976 F.3d 575, 579 (5th Cir. 2020) (whistleblower claims under 41 U.S.C. § 4712 are arbitrable)).

Employer-Initiated Injunction Proceedings

Despite a desire to arbitrate most claims with their employees, some employers want to preserve the right to seek injunctive relief in court, such as a temporary restraining order or preliminary injunction, against employees who misappropriate trade secrets or violate a restrictive covenant, such as a non-compete, non-solicitation, or confidentiality agreement. However, exempting an employer's right to seek relief in court is one-sided and may provoke unconscionability challenges to the arbitration agreement as a whole.
Most federal courts recognize their equitable authority to grant injunctive relief to preserve the status quo pending an arbitration under the FAA (see, for example, Merrill Lynch, Pierce, Fenner & Smith Inc. v. Bradley, 756 F.2d 1048, 1053 (4th Cir. 1985) (injunction appropriate where "arbitration of the dispute would be a hollow formality absent preliminary injunctive relief"); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Salvano, 999 F.2d 211, 214 (7th Cir. 1993); but see Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Hovey, 726 F.2d 1286, 1291–92 (8th Cir.1984) (holding that injunctive relief abrogates the FAA's intent and was therefore an abuse of discretion)). Many state laws also specifically provide for injunctive relief in aid of arbitration (see, for example, N.Y. CPLR 7502)). For more on injunctive relief and arbitration, see Provisional Remedies. For state-specific resources, see State Employment Litigation and Arbitration Toolkit: State-Specific Resources.

Claims Related to Sexual Harassment or Assault

Largely in response to the #MeToo movement, some employers began excluding sexual harassment and sexual assault claims (or discrimination claims more broadly) from their mandatory arbitration agreements, either on a voluntary basis or to comply with state or local laws or directives (see Sexual Harassment Claims in Settlement, Arbitration, and Other Employment Agreements State Laws Chart: Overview and Box, Legislative Measures Restricting Mandatory Arbitration).
With the passage of the EFAA, employers can no longer enforce predispute arbitration agreements relating to a sexual harassment or sexual assault dispute, unless it is the claimant's option to arbitrate (9 U.S.C. § 402(a); see also Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021). Employers with workers covered by the FAA therefore may want to do one or more of the following:
  • Generically exclude claims that cannot be arbitrated or subject to mandatory arbitration under applicable federal law.
  • Specifically exclude only sexual harassment and sexual assault claims.
  • Exclude sexual harassment and sexual assault claims and also other claims commonly asserted in those cases, such as sex discrimination or retaliation based on sex.
  • Only require arbitration of a limited category of employment-related claims, such as wage and hour disputes.
  • Revisit their arbitration programs and reassess the benefits and drawbacks of arbitration in light of the new law (see Benefits and Drawbacks of Arbitration Versus Court).

Arbitration Fees and Costs

Fee-Splitting Provisions

Courts are more likely to enforce arbitration agreements that require the employer to pay for the arbitrator's fees and expenses. Unless the agreement is with a highly compensated executive, most employment arbitration agreements require the employer to pay for the full cost of the arbitrator's fees and expenses. Some agreements require that the employee pay the initial arbitration filing fees, comparable to what the employee would pay to bring a lawsuit in court.
Some courts recognize an "effective vindication" exception to the FAA and have refused to compel arbitration on public policy grounds where the agreement effectively functions as a prospective waiver of an employee's statutory rights. This exception has been applied, for example, where a mandatory arbitration agreement requires an employee to pay a portion of the arbitrator's fees. (Nesbitt v. FCNH, Inc., 811 F.3d 371, 377 (10th Cir. 2016); see also Hudson v. P.I.P. Inc., 793 F. App'x 935, 937-38 (11th Cir. 2019) (arbitration provision that required each party to share arbitration expenses and pay their own attorneys' fees denied the plaintiff of a substantive right to recover fees and costs under the FLSA).)
Some courts sever the offending fee-splitting provision rather than invalidating the entire agreement (Morrison, 317 F.3d at 663). However, courts may be hesitant to sever an offending provision if the agreement does not contain a severability clause (see, for example, Hudson, 793 F. App'x at 938 (severability of offending fee-splitting clause must be determined as a matter of state law where agreement lacked a severability provision)). An agreement providing that the employer cannot seek any costs, filing fees, or attorneys' fees from the employee effectively guarantees that the employee is not financially deterred from bringing statutory claims in arbitration and reduces the likelihood of unconscionability challenges.
Fee-splitting provisions are not per se unenforceable. The AAA's arbitration rules distinguish between employer-promulgated arbitration programs and individually negotiated contracts and agreements. For arbitration programs applicable to a broader employee population, employers must pay the arbitrator's compensation unless the employee agrees, post-dispute, to pay a portion of the arbitrator's compensation. For individually negotiated agreements, the rules provide for splitting costs, subject to reallocation in the award. On filing a demand for arbitration, the AAA makes an initial administrative determination about whether the dispute arises from an employer-promulgated plan or an individually negotiated employment agreement.
Some courts have enforced arbitration agreements with fee-splitting provisions where the arbitrator has the authority to reallocate the costs as part of an award (see, for example, Zambrano v. Strategic Delivery Solutions, LLC, (S.D.N.Y. Sept. 22, 2016)). Alternatively, employers may provide for conditional cost-sharing, in which the agreement provides that the arbitrator may modify the fee obligation is the employee demonstrates an inability to pay. Courts also have enforced arbitration agreements with "loser pays" provisions (see, for example, Payne, , at *5-7).
If an employer enters into an individually negotiated arbitration agreement with a senior executive, typically as part of a broader executive employment agreement, the employer may consider using a fee-splitting provision regarding other arbitration expenses. However, including a fee-splitting provision may increase the likelihood of unconscionability challenges or claims that the agreement does not allow for an effective vindication of the plaintiff's rights (see, for example, Ward v. Ernst & Young U.S. LLP, 468 F. Supp. 3d 596 (S.D.N.Y. 2020)).

Consequences for Failure to Pay Arbitration Fees

Employers that opt for a class and collective waiver and deprive the arbitrator of the authority to consolidate claims may face substantial expenses having to defend similar claims from multiple employees (see Serial or Mass Individual Arbitrations). In Hernandez v. Acosta Tractors, the US Court of Appeals for the Eleventh Circuit considered whether an employer's failure to pay arbitration fees was grounds for issuing a default judgment against it in court. The district court entered a default judgment against an employer that moved to compel arbitration but eventually stopped paying the arbitration fees and instead sought to litigate in court. The court found that the employer's failure to pay the arbitrator's fees did not warrant a default judgment and remanded the case. The court noted that if the employer acted in bad faith and engaged in forum shopping (rather than being unable to afford the arbitration fees) then a default judgment might be appropriate as a sanction. (Hernandez, 898 F.3d at 1305-06.)
An employer that fails to pay arbitration fees or otherwise breaches an arbitration agreement may be compelled to litigate claims that otherwise would be subject to arbitration, even if the litigation is on a class or collective basis (see Gomez v. MLB Enterprises Corp., (S.D.N.Y. June 5, 2018)).

Contractually Shortened Statutes of Limitations

Employers may seek to limit the time period to bring a claim for arbitration by inserting time limitations within which parties must submit a claim to arbitration. Courts have enforced various limitations on an employee's right to bring employment claims, including:
If employees challenge an arbitration agreement or clause containing a shortened statutory period, courts generally review the provision for procedural or substantive unconscionability (Celaya v. Am. Pinnacle Mgmt. Servs., LLC, , at *1, *4-5 (N.D. Tex. Aug. 29, 2013)). For example, an arbitration provision shortening the limitations to one year, compared with up to three years for a willful FMLA violation, was not unconscionable because there was no requirement that the plaintiff exhaust her administrative remedies before proceeding to arbitration (Bracey v. Lancaster Foods, LLC, , at *5-7 (D. Md. Mar. 30, 2018)).
However, the US Court of Appeals for the Ninth Circuit found that an arbitration agreement limiting the statutory period for California state discrimination claims to one year from when the employee knew or should have known of the facts supporting her claim was both procedurally and substantively unconscionable. The court reasoned that it "grossly favored" the employer because it deprived the employee of relief under the continuing violations doctrine and the parties lacked equal bargaining power. (Ingle, 328 F.3d at 1175; see also Circuit City, 279 F.3d at 894 (9th Cir. 2002).)
If the shortened limitations provision is unconscionable, courts generally can sever the offending provision and enforce the arbitration agreement. For example:
While provisions shortening the limitations period are enforceable in most jurisdictions for some claims, they are generally not recommended in arbitration agreements because:
  • They are unenforceable for FLSA claims in most jurisdictions.
  • Agreements with these provisions are more likely to be challenged as unconscionable, though in most jurisdictions the offending provisions may be severed from an otherwise enforceable agreement.
  • The employee still has the right to file an EEOC charge within 300 days of the incident, or longer if the employee alleges a continuing violation.
  • Doing so may encourage the EEOC to bring a systemic discrimination litigation against the employer (see Practice Note, EEOC Systemic Discrimination Litigation).
For more on contractually shortened limitations periods, see Practice Note, Contractually Shortened Statutes of Limitations for Employee Claims.

Choice of Law and Forum Selection

The arbitration agreement should indicate the parties' choice of law to govern both:
  • The arbitration agreement.
  • The conduct of subsequent proceedings (the arbitration law).
Neither needs to be the same as the law that governs the merits of any underlying dispute between the parties (the substantive law).
Federal arbitration law (the FAA) generally applies unless the parties specifically agree that a state's arbitration (procedural) law applies. To avoid ambiguity, employers generally should specify that the FAA procedural arbitration law governs the agreement to maximize the benefit of the FAA's presumption in favor of arbitrability (see AT&T Mobility, 563 U.S. at 346).
If the employee's agreement may be exempt from FAA coverage or coverage is questionable (such as with certain transportation workers), the employer may want to specify what procedural law governs the dispute if the FAA does not apply. In some circumstances, courts may enforce a valid arbitration agreement under state law where the parties agreement is exempted from FAA coverage by the transportation workers exception (see Saxon, (applying the Illinois Uniform Arbitration Act)). However, at least one court found the lack of a valid arbitration agreement where the agreement provided that the FAA and federal law governed, but the FAA did not apply to the transportation worker plaintiffs (see Rittmann, at 971 F.3d at 920-21 (refusing to apply Washington state law, holding that there was no valid arbitration agreement because it provided that the FAA and federal law governed the arbitration clause and the FAA did not apply to Amazon delivery drivers); see also Standard Document, Mutual Agreement to Arbitrate Employment-Related Disputes (US): Governing Law; Substantive Law).
The employer may also separately provide what:
  • Substantive law governs the claims alleged in arbitration.
  • State's law applies to revocation and other defenses under the saving clause of the FAA, though most often this will be the law of the state where the arbitration is held.
Courts have held that the existence of an arbitration clause and a clause designating a particular court as the forum for resolving disputes are not necessarily conflicting and do not negate an agreement expressing an intent to arbitrate (White v. ACell, Inc., 779 F. App'x 359, 364-65 (6th Cir. 2019)).
Employers should review other employment-related contractual provisions to ensure that the choice of law and forum selection provisions in the arbitration agreement do not conflict with any other agreements, such as an employment contract or a restrictive covenant agreement. Employers that include an arbitration clause within another employment-related agreement should avoid using language stating that any federal or state court is the sole and exclusive forum to resolve any disputes between the parties or any other language that precludes arbitration.

Written Opinion

Arbitrators are not required to explain their decisions or provide a written opinion when issuing an arbitral award (Wallace v. Buttar, 378 F.3d 182, 190 (2d Cir. 2004)). However, an arbitration agreement may require a written decision. A written decision aids either party in challenging an award based on the arbitrator's "manifest disregard of the law." Absent a written opinion, a party challenging the award can only speculate about the rational for the arbitrator's award, which is an insufficient basis for demonstrating manifest disregard (see, for example, NSB Advisors, LLC v. C.L. King & Assoc., Inc., 61 Misc.3d 1211(A) (Sup. Ct. N.Y. Cnty. 2018); see also Manifest Disregard as Grounds for Vacating an Award). However, requiring a written opinion requires more arbitrator time and therefore increases the arbitration fees, which generally are paid by the employer.

Compelling and Enjoining Arbitration

Parties agreeing to arbitrate a dispute may proceed directly to arbitration under the terms of an arbitration agreement. However, when a party commences litigation or arbitration contrary to the terms of an agreement, or a party commences arbitration despite the lack of an agreement to arbitrate, a party may seek a court order to compel or enjoin arbitration proceedings. Federal courts may compel arbitration of disputes covered by domestic and international arbitration agreements (9 U.S.C. §§ 4, 202). Courts may also stay lawsuits pending arbitration (9 U.S.C. § 3). A party usually seeks a stay of arbitration by application for a preliminary injunction.
When an employee files a federal lawsuit alleging claims covered by an arbitration agreement, the employer typically moves simultaneously to compel arbitration and to either stay or dismiss the court case in favor of the arbitral forum.
The US Supreme Court has yet to rule on whether the court can dismiss the case outright or must stay the case pending arbitration (Green Tree Fin. Corp., 531 U.S. at 87 n. 2). The federal circuit courts are split about whether parties should move:
  • To dismiss based on:
  • To stay the lawsuit under the FAA pending the arbitration proceedings.
Several courts have upheld dismissal when all claims were submitted to arbitration (see, for example, Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992) (holding with the weight of authority that dismissal is appropriate when all of the issues raised in the district court must be submitted to arbitration); Forrest v. Spizziri, 62 F.4th 1201, 1204-05 (9th Cir. 2023) (three-judge panel was bound by circuit precedent to affirm court's discretion to grant dismissal)). Other courts have held that the FAA's language mandates a stay rather than dismissal when requested by one of the parties (see, for example, Katz v. Cellco P'ship, 794 F.3d 341 (2d Cir. 2015) (summarizing circuit split and holding that a stay of proceedings, rather than dismissal of the complaint, was required when all claims were referred to arbitration); Arabian Motors Grp. W.L.L. v. Ford Motor Co., 19 F.4th 938, 941-42 (6th Cir. 2021) (same).)
The US Supreme Court has granted certiorari in Smith v. Spirzziri to decide the issue ( (U.S. Jan. 12, 2024)).
A stay is general preferable for an employer claiming that the dispute is arbitrable because under the FAA it is a non-appealable interlocutory order.
The employer should act promptly regardless of the procedural mechanism used to pursue arbitration. Continuing to defend a suit too long in court may result in the employer waiving of the right to compel arbitration, whether or not the claimant has been prejudiced (Morgan v. Sundance, Inc., 142 S. Ct. 1708, 1713-14 (2022) (resolving circuit split, court held that federal waiver law does not require showing of prejudice to the opposing party; FAA policy favoring arbitration does not justify creating an arbitration-specific waiver standard); see also Schwebke v. Schwebke v. United Wholesale Mortgage LLC, , at *4 (6th Cir. Mar. 27, 2024) (applying Morgan, court held that the employer waived arbitration by engaging in extensive discovery for seven months without mentioning arbitration)).
For more on compelling and enjoining arbitration generally, see Practice Note, Compelling and Enjoining Arbitration in US Federal Courts and US Arbitration Toolkit.

Challenging Arbitral Awards in Court

The FAA provides limited grounds for vacating an arbitration award including that:
  • The award was procured by corruption, fraud, or undue means.
  • The arbitrator was evidently partial or corrupt.
  • The arbitrator was guilty of misconduct in refusing to postpone the hearing on sufficient cause shown or refusing to hear evidence pertinent or material to the controversy or of any other misbehavior that prejudiced the rights of any party.
  • The arbitrator exceeded the arbitrator's delegated powers or so imperfectly executed them that a mutual, final, and definite award was not made.
(9 U.S.C. § 10(a); see Practice Notes, Vacating, Modifying, or Correcting an Arbitration Award in Federal Court and Enforcing Arbitration Awards in the US: Expanded Judicial Review Under State Law.)
The US Supreme Court has held that the statutory grounds for setting aside an arbitral award are exclusive, and parties cannot contractually expand those grounds (Hall St., 552 U.S. at 584). However, the parties to an arbitration agreement may expand the grounds for judicial review of arbitrations conducted under some states' arbitration laws (see Practice Note, Choosing an Arbitral Seat in the US). For state-specific arbitration agreements and drafting notes, see State Employment Litigation and Arbitration Toolkit: State-Specific Resources.

Manifest Disregard as Grounds for Vacating an Award

Before Hall Street, many courts recognized an arbitrator's manifest disregard of the law as an independent ground for vacating an award. The doctrine does not apply to a mere mistake of law or a clear fact-finding error, and it only applies in rare circumstances. Although the precise parameters of this doctrine vary by jurisdiction, it generally applies where both:
  • A law or legal principle is well-defined, explicit, and clearly applicable to the case.
  • The arbitrator:
    • knew about the law or legal principle and that it controlled the outcome of the case; and
    • refused to apply it.
(See, for example, Goldman v. Architectural Iron Co., 306 F.3d 1214, 1216 (2d Cir. 2002).)
There is a split of authority about whether the manifest disregard doctrine survives Hall Street. Some courts, such as the Fifth, Eighth, and Eleventh Circuits, have interpreted Hall Street as prohibiting judicially created grounds for vacating an award under the FAA, including manifest disregard (Jones v. Michaels Stores, Inc., 991 F.3d 614, 615-16 (5th Cir. 2021), citing Citigroup Global Mkts. Inc. v. Bacon, 562 F.3d 349, 350, 355 (5th Cir. 2009); Medicine Shoppe Int'l, Inc. v. Turner Invs., Inc., 614 F.3d 485, 489 (8th Cir. 2010); Frazier v. CitiFinancial Corp., LLC, 604 F.3d 1313, 1324 (11th Cir. 2010)).
Other courts, such as the Second, Fourth, and Ninth Circuits, continue to recognize manifest disregard as a valid ground for vacating an arbitral award. These courts reason that arbitrators who manifestly disregard the law have exceeded their powers, and that manifest disregard therefore falls within the statutory grounds (see, for example, Schwartz v. Merrill Lynch & Co., Inc., 665 F.3d 444, 451-52 (2d Cir. 2011) (recognizing manifest disregard as a "judicial gloss" on the statutory grounds); Wachovia Sec. LLC v. Brand, 671 F.3d 472, 480 (4th Cir. 2012); Comedy Club, Inc. v. Improv West Assoc., 553 F.3d 1277, 1290 (9th Cir. 2009) (holding that manifest disregard "is shorthand for a statutory ground under the FAA" that the arbitrators exceeded their powers)).
In a post-Hall St. decision arising in the collective bargaining context, the Third Circuit applied the manifest disregard standard without questioning or analyzing its continued validity (Monongahela Valley Hosp. Inc. v. United Steel Paper & Forestry Rubber Mfg. Allied Indus. & Serv. Workers Int'l Union AFL-CIO CLC, 946 F.3d 195 (3d Cir. 2019) (vacating an arbitration award where an arbitrator "ignored" the plain language of a CBA and exceeded their authority by injecting language not present in the agreement); see also Warfield, 26 F.4th at 674 (recognizing the manifest disregard doctrine but refusing to apply the "sky-high standard of judicial review" and declining to revisit or overrule Wachovia)). In another post-Hall St. decision, the Supreme Court assumed, without deciding, that manifest disregard may remain a valid challenge to an arbitral award (Stolt-Nielsen, 130 S. Ct. at 1768, n.3).
Until the Supreme Court resolves the circuit split, employers in jurisdictions that do not recognize manifest disregard as a valid ground for vacating an award may consider applying state arbitration law to their dispute if the applicable law is more favorable.

Confirming the Award

On a motion for an order confirming an arbitration award, the court "must grant" the order "unless the award is vacated, modified, or corrected" under the grounds allowed in Section 10 and 11 of the FAA (9 U.S.C. §§ 10, 11; Hall St., 552 U.S. at 587). If the court can infer any justification for the award from the facts of the case, the court must confirm the award (see, for example, GMS Grp., LLC v. Benderson, 326 F.3d 75, 78 (2d Cir. 2003); Rai v. Barclays Capital Inc., 739 F. Supp. 2d 364, 376 (S.D.N.Y. 2010)).
Section 9 of the FAA permits the entry of judgment on an arbitration award only if the parties have agreed that a court judgment must be entered after the award. Courts have generally held that Section 9 of the FAA requires language to this effect. Although the agreement to enter judgment may be implied from the facts and circumstances, employers should include the statement: "Judgment on the award rendered by the arbitrator may be entered in any court of competent jurisdiction."
An arbitration agreement cannot waive all federal court review or supplement the statutory grounds for vacating an arbitral award under the FAA (In re Wal-Mart Wage & Hour Empl. Practices Litig., 737 F.3d 1262 (9th Cir. 2013)). However, the parties to an arbitration agreement can waive the right to appeal a district court's order confirming an arbitration award (Beckley Oncology Assocs., Inc. v. Abumasmah, 993 F.3d 261 (4th Cir. 2021) (dismissing appeal where agreement provided that arbitrator's decision "shall be final and conclusive and enforceable in any court of competent jurisdiction without any right of judicial review or appeal”); see also MACTEC, Inc. v. Gorelick, 427 F.3d 821 (10th Cir. 2005)).
For more on confirming awards, see Practice Note, Enforcing Arbitration Awards in the US and Enforcing or Challenging Arbitration Awards in the US Toolkit.

Scope of Transportation Workers Exception to FAA Coverage

The FAA does not apply to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce" (9 U.S.C. § 1). The scope of this so-called transportation workers exemption has been heavily litigated in many contexts. Courts have debated issues such as:
  • Whether the exemption only applies within the transportation industry.
  • What it means to be engaged in interstate commerce, such as whether individuals have to cross state lines to be covered by the exemption.
  • Whether the exemption applies equally to the transportation of goods and passengers across state lines.
Note, however, that at least one federal appellate court has held that when there is a dispute about whether the FAA applies to a class of workers, before ordering discovery on that issue a court may determine as a threshold question whether state law grounds exist that would compel arbitration even if the FAA does not apply (Harper v. Amazon.com Servs., Inc., 12 F.4th 287, 293-94 (3d Cir. 2021)).

Business to Business Contracts

Several federal appellate courts have clarified and consistently held that the transportation worker exemption only applies to "contracts of employment" and not business to business contracts, including the US Courts of Appeal for the:

Airline Workers

In Saxon v. Southwest Airlines Co. (Saxon I), the Seventh Circuit held that airline cargo loaders are among the "other class of workers engaged in foreign or interstate commerce," akin to railroad workers and seamen. The court held that airline ramp supervisors who sometimes perform cargo loading and unloading are members of that class and therefore exempt from FAA coverage as transportation workers. Notably, Southwest did not dispute that the airline was engaged in commerce, abandoning on appeal the argument that because its business is transporting passengers it is not engaged in commerce. (993 F.3d 492 (7th Cir. 2021); for more on the passenger versus goods distinction, see Box, Car Service and Rideshare Drivers.)
The Seventh Circuit engaged in a detailed textual analysis of the residual category of "other class of workers engaged in foreign or interstate commerce," drawing parallels to seamen and railroad employees in 1925 when the FAA was enacted. The court also noted that:
  • The ultimate inquiry is whether the employees belong to a class of workers engaged in interstate commerce, not whether they work for an employer engaged in commerce.
  • Cargo loaders generally are a class of people engaged in the transportation of goods.
  • Because ramp supervisors spend time each week physically loading and unloading passenger baggage and cargo from planes, they belong to a class of workers engaged in interstate commerce, even though their primary role is supervising others who primarily perform that function.
(Saxon I, 993 F.3d at 497-99.)
The US Supreme Court affirmed the Seventh Circuit's decision in Saxon I, holding that airline ramp supervisors are among the class of workers exempt from FAA coverage. In a unanimous decision (but for Justice Barrett abstaining), the Court confirmed that:
  • The relevant class of workers is defined by the specific class of workers' conduct (in this case loading and unloading airplane cargo), rejecting an industry-wide approach.
  • The class of airplane cargo loaders are a class of workers "engaged in foreign or interstate commerce" based on the statutory text and context.
  • The class of transportation workers exempt from the FAA need not necessarily physically move goods or people across state or international boundaries.
  • The statutory text governs the result despite the policy in favor of arbitration expressed in the FAA.
(Sw. Airlines Co. v. Saxon, 142 S. Ct. 1783, 1788-90 (2022) (Saxon II).)
Saxon II abrogates the Fifth Circuit's holding in Eastus v. ISS Facilities Servs., Inc., 960 F.3d 207, 211-12 (5th Cir. 2020) (holding that supervisor of airline gate agents is covered by FAA because loading and unloading luggage is not engagement in the movement of goods, parties conceded that longshoremen were not exempt from FAA, and court concluded gate agents more resembled longshoremen than seamen, who were exempt)). The Supreme Court noted the distinction between airline cargo loaders, who were actively engaged in interstate commerce, from sellers of asphalt for intrastate construction of interstate highways and janitors providing local services to company engaged in interstate commerce, who were not so engaged.
The Supreme Court expressly acknowledged the limited scope of its holding, recognizing that "the answer will not always be so plain when the class of workers carries out duties further removed from the channels of interstate commerce or the actual crossing of borders," such as with "last leg" delivery drivers and intrastate food service delivery drivers (Saxon II, 142 S. Ct. at 1789 n.2; see Box, Local and Last-Mile Delivery Drivers). For more on the Saxon II, see Legal Update, US Supreme Court Holds Airport Ramp Supervisors Exempted From Coverage Under FAA.
Following the Supreme Court's ruling that the plaintiff was exempt from coverage under the FAA, Southwest pursued its efforts to compel arbitration under the Illinois Uniform Arbitration Act (IUAA). Unlike the FAA, the IUAA has no exemption for transportation workers. A federal district court judge granted Southwest's motion to compel arbitration and stay the federal action, holding that:
  • Southwest did not waive the right to compel arbitration under the IUAA. Even though it did not raise the IUAA argument in support of its motion to dismiss, it now moved to stay (rather than dismiss) the action and never acted inconsistently with an intent to arbitrate.
  • The parties' arbitration was enforceable under Illinois law and was not:
    • unconscionable; or
    • rendered unenforceable by the Illinois Worker Transparency Act (WTA), which prohibits mandatory arbitration of certain claims as a condition of employment, but only applies to discrimination, harassment, and retaliation claims under federal or state law, not wage and hour claims.
(Saxon v. Sw. Airlines Co., (N.D. Ill. Mar. 10, 2023) (Saxon III).)

Transportation Workers Outside the Transportation Industry

Until recently, there had been a circuit split about whether an individual must work in the transportation industry for the exemption to apply.
The Second Circuit had held that truck drivers delivering bakery goods in Connecticut were not exempt from FAA coverage because they do not work in the transportation industry. The court defined the transportation industry as one which "pegs its charges chiefly to the movement of goods or passengers" and where its "predominant source of commercial revenue is generated by that movement." The court held that the bakery truck delivery drivers were in an industry where the "commerce is in breads, buns, rolls, and snack cakes—not transportation services." The court concluded that working in the transportation industry is necessary, though not in itself sufficient, to qualify for the exemption. (Bissonnette v. LePage Bakeries Park St., LLC, 49 F.4th 655, 661 (2d Cir. 2022) (Bissonnette I) (originally decided before Saxon II but subsequently reaffirmed in panel hearing post-Saxon II).)
In a post-Saxon II decision, the First Circuit declined to follow Bissonnette I's industry-based approach and focused instead on the jobs the workers themselves perform, not what the company generally does (Fraga v. Premium Retail Servs., Inc., 61 F.4th 228, 234-35 (1st Cir. 2023) (remanding to the district court for further findings about whether the plaintiff was among the class of transportation workers covered by the exemption); see also Caneles v. CK Sales Co., LLC, 67 F.4th 38 (1st Cir. 2023)). These First Circuit decisions created a circuit split with the Second Circuit.
On April 12, 2024, the US Supreme Court resolved the circuit split and reversed the Second Circuit's decision in Bissonnette I. The Court unanimously held that an individual need not work in the transportation industry for the FAA's Section 1 transportation workers exemption to apply. The court noted that:
  • The Second Circuit's industry-focused revenue source test was not guided by the FAA's text or Supreme Court precedent. Applying the test would "turn on arcane riddles about the nature of a company's services" and could involve extensive discovery to resolve a "simple" motion to compel arbitration.
  • The exemption would not "sweep too broadly" to encompass every worker who loads and unloads goods because they still must be actively engaged in interstate commerce to fall within the exemption.
(Bissonnette v. LePage Bakeries Park St., LLC, , at *5-6 (U.S. Apr. 12, 2024) (Bissonnette II).)
Other decisions have rejected the industry-wide approach and held that not all employees who work for an employer engaged in interstate commerce, such as the US Postal Service, are exempt from FAA coverage. The exemption does not apply where the employee does not physically transport goods or at least work closely with others who do. (See, for example, Sheppard v. Staffmark Inv., LLC, , at *5 (N.D. Cal. Feb. 23, 2021) (discussing pre- and post-Circuit City precedent).)

Car Service and Rideshare Drivers

Until recently, most federal appellate courts to consider the scope of the Section 1 exemption held that workers engaged in an industry primarily concerned with the transportation of passengers, such as commercial airlines or passenger car service or taxi drivers, are covered by the FAA and do not fall within the transportation workers exemption (see Asplundh Tree Expert Co. v. Bates, 71 F.3d 592, 600-01 (6th Cir. 1995); Lenz v. Yellow Transp., Inc., 431 F.3d 348, 351 (8th Cir. 2005) (adopting multi-factor test); Paladino v. Avnet Computer Techs., 134 F.3d 1054, 1060-61 (11th Cir. 1998)).
More recently, courts have focused more on the workers' engagement in interstate commerce rather than the passenger versus goods distinction. Many courts have concluded that car service drivers are not among the "class of workers engaged in foreign or interstate commerce," even if they occasionally cross state lines or transport passengers to or from airports or train stations (see Osvatics v. Lyft, Inc., 535 F. Supp. 3d 1 (D. D.C. 2021)). The Osvatics court rejected the goods versus passenger distinction as irrelevant and analyzed Lyft drivers as a category of workers nationwide, not limited to the DC area. The court held, consistent with the majority of other courts to consider the issue, that these drivers were not exempt from FAA coverage (Osvatics, 535 F. Supp. 3d at 15-19; see also Capriole v. Uber Techs. Inc., 7 F.4th 854, 863-64 (9th Cir. 2021) (joining the "the growing majority of courts holding that Uber drivers as a class of workers do not fall within the 'interstate commerce' exemption from the FAA"); but see Islam v. Lyft, Inc., 524 F. Supp. 3d 338, 351-56 (S.D.N.Y. 2021) (holding that Lyft drivers as a national class of workers who drove passengers to and from hubs of interstate travel were transportation workers engaged in interstate commerce and therefore exempt from FAA coverage)).
In Cunningham v. Lyft, Inc., the First Circuit joined the growing trend and compelled arbitration in a driver misclassification suit, reversing the district court's decision. The court held that Lyft drivers were not among the "class of workers" engaged in interstate commerce, even though drivers:
  • Sometimes crossed state lines.
  • Transported passengers to and from Logan Airport
(17 F.4th 244 (1st Cir. 2021).)
The Third Circuit also rejected the passenger versus goods distinction, but held that "workers engaged in foreign or interstate commerce" may also include workers who transport passengers (Singh v. Uber Techs. Inc., 939 F.3d 210, 221-26 (3rd Cir. 2019) (remanding to district court for further analysis based on this holding)). In a consolidated appeal after remand, the Third Circuit concluded, consistent with many sister circuits, that the nationwide class of Uber drivers was not a class of workers "engaged in foreign or interstate commerce." The court therefore held that the drivers were not exempt from FAA coverage because:
  • Uber drivers' work is essentially local transportation.
  • Most Uber drivers have never crossed state lines.
  • If they cross state lines they do so "only incidentally" as a "happenstance of geography."
(Singh v. Uber Techs. Inc., 67 F.4th 550, 554-60 (3d Cir. 2023); see also Islam, 524 F. Supp. 3d at 355-56 (rejecting the passenger versus goods distinction); Gonzalez v. Lyft, Inc., , at *3-4 (D.N.J. Jan. 29, 2021) (declining to require a minimum threshold of interstate work to be excluded from FAA coverage and rejecting out-of-circuit precedent requiring out-of-state transport to be "predominant and central" to plaintiffs' work)).)
Without deciding the passenger versus goods issue, the Ninth Circuit similarly upheld the district court's ruling that rideshare drivers who frequently pick up and drop off passengers at airports do not fall within the other "class of workers engaged in foreign or interstate commerce" (In re Grice, 974 F.3d 950 (9th Cir. 2020) (finding district court's ruling was not clearly erroneous as a matter of law); see also Rogers v. Lyft, Inc., 452 F. Supp. 3d 904, 913-918 (N.D. Cal. 2020), aff'd by (9th Cir. Feb. 16, 2022) (ride-sharing service drivers who often dropped off and picked up passengers at airports and train stations were not a class of workers engaged in foreign or interstate commerce, and therefore did not fall within transportation workers exemption); Hinson v. Lyft, Inc., 522 F. Supp. 3d 1254, 1261-62 (N.D. Ga. 2021) (holding that Lyft drivers are not engaged in interstate commerce or exempt from the FAA, finding Lyft drivers "are more like taxi drivers than last-mile delivery drivers of Amazon products")).
Practical Law will continue to monitor these developments, including the extent to which the Supreme Court's Saxon decision impacts and is applied to this analysis.

Local and Last-Mile Delivery Drivers

The courts have debated whether the transportation workers exception applies to workers who do not physically cross state lines. Several circuit and district courts have recently addressed the scope of this exemption, reaching contrary conclusions.
The First Circuit held that the exemption covers the contracts of transportation workers who transport goods or people within the flow of interstate commerce, not simply those who physically cross state lines in the course of their work (see Waithaka v. Amazon.com, Inc., 966 F.3d 10, 13 (1st Cir. 2020) (holding that employment contracts of delivery workers who only transport goods intrastate on the last legs of interstate journeys fall within transportation workers exemption from FAA coverage)). The Ninth Circuit reached the same conclusion on almost identical facts (Rittmann v. Amazon.com, Inc., 971 F.3d 904 (9th Cir. 2020), cert. denied 141 S. Ct. 1374 (2021)). Several district courts have adopted a similar analysis (Brock v. Flowers Food, Inc., , at * 4-7 (D. Colo. May 16, 2023) (holding that independent distributor who loads and unloads bakery products ordered from out-of-state bakeries is among class of workers engaged in interstate commerce and exempt from FAA coverage; also refusing to compel arbitration under Colorado law because parties agreed to arbitrate "exclusively" under the FAA)).
More recently, the First Circuit reached a different conclusion regarding couriers who deliver goods from local restaurants and retailers (Immediato v. Postmates, Inc., 54 F.4th 67, 74-78 (1st. Cir. 2022)). The court held that the couriers are "not actively engaged in the interstate transport of goods," distinguishing them from the "last mile" delivery drivers in Waithaka who were "responsible for the final leg of a package's interstate journey" (54 F.4th at *71, 75); see also Levine v. Grubhub Hldgs., Inc., (1st Cir. Dec. 2, 2022) (reaching the same conclusion, following Immediato)).
Although the Ninth Circuit has held that pizza delivery drivers also were engaged in a "single, unbroken stream of interstate commerce" even though they did not cross state lines, that decision was vacated by the US Supreme Court and remanded for further consideration in light of its decision in Saxon III (Carmona v. Domino's Pizza, LLC, 21 F.4th 627, 629-30 (9th Cir. 2021), vacated by Domino's Pizza, LLC v. Carmona, 143 S. Ct. 361 (2022)). However, on reconsideration, the Ninth Circuit once again reached the conclusion that the drivers delivering ingredients from a California supply chain center to California franchisees were of a class of workers engaged in interstate commerce and therefore exempt from coverage under the FAA (Carmona v. Domino's Pizza, LLC, 73 F.4th 1135, 1137 (9th Cir. 2023) (noting that court was bound to follow Rittmann unless it was "clearly irreconcilable" with Saxon III, which it was not)).
In Wallace v. Grubhub Holdings, Inc., the Seventh Circuit construed the exemption more narrowly in holding that the exemption does not cover local food service delivery drivers, even if they transport goods that may have crossed state lines. The court emphasized that the relevant analysis must focus on the class of workers (not each individual worker) and whether they are engaged in interstate commerce, not merely where the goods originated (970 F.3d 798 (7th Cir. 2020) (affirming district court in holding that plaintiffs failed to show that the interstate movement of goods was a central part of the class of workers' jobs and therefore were covered by the FAA); see also Harper, 12 F.4th at 293 (the exemption requires an analysis of the class of workers rather than particular workers); Archer v. Grubhub, Inc., 190 N.E.3d 1024 (Mass. 2022) (local delivery drivers who did not cross state lines were not among "class of workers" exempt from FAA coverage; court compelled plaintiffs to arbitration)).
In Hamrick v. Partsfleet, LLC, the Eleventh Circuit similarly found that last-mile delivery drivers who transported goods that travelled from out-of-state but did not themselves cross state lines were not a "class of workers" engaged in interstate commerce. The court agreed with the Seventh Circuit's analysis as "more faithful to the text" of the FAA exemption and held that the appropriate focus was on the workers' relationship to interstate commerce, not whether the goods had travelled interstate. (1 F.4th 1337 (11th Cir. 2021); see also Bean v. ES Partners, Inc., 533 F. Supp. 3d 1226, 1231-36 (S.D. Fla. 2021) (local driver delivering medications and medical devices are not transportation workers falling within the exemption even if goods were made out of state).)
Applying the analytic framework from the Supreme Court's decision in Saxon III, the Fifth Circuit held that local delivery drivers as a class of workers were not engaged in interstate commerce and therefore did not fall within the scope of the transportation workers exemption from FAA coverage (Lopez v. Cintas Corp., 47 F.4th 428, 432-33 (5th Cir. 2022) (class of workers who retrieve items from a local warehouse and deliver them to local customers do not have a "direct and necessary role" in transporting goods across borders)). This holding is consistent with the Seventh and Eleventh Circuits' approach. However, it creates a split with the Ninth Circuit, which has affirmed its contrary holding after reconsideration in Domino's based on circuit precedent (73 F.4th at 1137) and the First Circuit's decision in Waithaka regarding last-mile delivery drivers (54 F.4th at *71, 75).

Logistics Warehouse and Other Supply Chain Employees

In Ortiz v. Ranstad Inhouse Servs., LLC, the Ninth Circuit applied the Supreme Court's Saxon analysis to conclude that a logistics warehouse worker was "actively engaged" in and "intimately involved with" transportation to the same degree as Saxon. In Ortiz, the plaintiff worked solely in a warehouse and did not personally transport goods across state or international boundaries. Despite this, the court held that Ortiz was a transportation worker exempt from coverage under the FAA. Specifically, the court analyzed the three prongs of the Saxon test and:
  • Considered the plaintiff's job duties, not the overall industry. In this case, plaintiff did not unload shipping containers that came from overseas or across state lines but was involved in:
    • transporting packages to and from storage racks;
    • helping other employees in obtaining packages to be shipped; and
    • assisting the Outflow Department to prepare packages for their subsequent shipment.
  • Played a "direct and necessary" role in and was "intimately involved" with transportation of the goods because he handled products:
    • near the very heart of their supply chain, when the goods were still moving in interstate commerce, and played a necessary part in facilitating their continued movement; and
    • as they went through the process of entering, temporarily occupying, and subsequently leaving the warehouse.
(Ortiz, , at *4-6 (9th Cir. Mar. 12, 2024).)

Independent Contractors

In 2019, the US Supreme Court resolved a prior circuit split and held that the transportation workers exception applies to workers engaged in foreign or interstate commerce whether they are employees or independent contractors. The Court held that the plain meaning of "contract of employment" under the FAA in context of when the law was enacted includes contracts with independent contractors as a "class of workers" in the transportation industry. (New Prime, Inc. v. Oliveira, 139 S. Ct. 532 (2019); see also Legal Update, Supreme Court Holds FAA Applicability Is Threshold Issue for Court; Independent Contractors Covered by FAA's Transportation Workers Exception).

Legislative Measures Restricting Mandatory Arbitration

Federal Legislation Banning Class Action Waivers

On July 16, 2021, a bipartisan group of four Democrats and two Republican members of Congress introduced the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (H.R. 4445) (EFAA). Though more limited in scope than previous proposals, this bill renders unenforceable predispute arbitration agreements and joint-action action waivers regarding any sexual assault or sexual harassment disputes, unless it is the claimant's preference to arbitrate.
On February 7, 2022, the House of Representatives passed this bill with an overwhelming bipartisan majority (335-97). The Senate quickly passed the bill on February 10, 2022. The bill was signed by President Biden on March 3, 2022 and became effective on enactment.
Unlike some of the state laws discussed below, the EFAA does not prohibit mandatory arbitration of other employment-related claims, including claims of sex discrimination or harassment based on any other protected class, such as race or religion. However, the circuit courts have not yet determined whether the EFAA precludes arbitration of an entire case in which sexual harassment has been plausibly alleged, including other claims that are not specifically addressed by the law, or only disputes related to sexual harassment or assault (see Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021).

State-Level #MeToo and Other Laws Restricting Mandatory Arbitration of Sexual Harassment Claims

Largely in response to the #MeToo movement, several states and local jurisdictions passed laws prohibiting or restricting employers from requiring employees to arbitrate sexual harassment, assault, or abuse claims, or purport to ban all mandatory arbitration agreements with employees. For example:
  • New York state passed a series of anti-harassment laws as part of the 2018 annual budget prohibiting employers with four or more employees from entering into mandatory arbitration agreements requiring employees to arbitrate sexual harassment claims and:
    • apply to contracts entered into on or after July 11, 2018 but does not apply to CBAs;
    • do not apply where "prohibited by federal law;" and
    • are subject to further amendments passed by the legislature in June 2019 that apply the prohibitions to all harassment and discrimination claims.
    (N.Y. CPLR 7515; S.B. 6577; see also Box, FAA Preemption and Other Challenges to Arbitration Bans.)
  • New Jersey passed a law prohibiting any provision that waives a substantive or procedural right or remedy relating to a discrimination, retaliation, or harassment claims. The law became effective March 18, 2019. (N.J.S.A. 10:5-12.7, 10:5-12.9, 10:5-12.11.) However, it has been subject to legal challenge and enjoined by at least one court (see Box, Legal Challenges to N.J. Stat. Ann. 10:5-12.7 (Section 12.7)
  • Vermont passed a law similar to New Jersey's prohibiting the waiver of a substantive or procedural right or remedy regarding sexual harassment claims (21 V.S.A. § 495h(g) (effective July 1, 2018)).
  • Maryland's Disclosing Sexual Harassment in the Workplace Act, which became effective on October 1, 2018:
    • prohibits employers from requiring employees to arbitrate sexual harassment claims;
    • contains an exception so that it does not apply if prohibited by federal law (such as the FAA);
    • contains robust anti-retaliation protections for any employee who fails or refuses to enter into an agreement with a prohibited provision; and
    • holds employers liable for attorneys' fees and costs if they try to enforce an agreement with a prohibited provision.
    (Md. Code Ann., Lab. & Empl. § 3-715.)
  • The Illinois Workplace Transparency Act, which became effective January 1, 2020, prohibits employers from entering into arbitration agreements regarding unlawful employment practices as a unilateral condition of employment or continued employment (820 ILCS 96/1-15, 96/1-25(b)).
Enacted independently of the #meToo movement, Kentucky law previously prohibited employers from conditioning employment on an existing employee's or applicant's agreement to "waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled" under state or federal law (KRS 336.700(2)). A Kentucky Supreme Court decision upheld the law's validity (N. Ky. Area Dev. Dist. v. Snyder, , at *4 (Ky. Sept. 27, 2018)). However, bucking the #MeToo trend, the governor subsequently signed an amendment to this statute on March 25, 2019, restoring Kentucky employers' right to require arbitration as a condition of employment and continued employment (KRS 336.700(2), (3) (as amended) (see Legal Update, Kentucky Employers May Make Arbitration Mandatory as a Condition of Employment or Continued Employment).
For more on these and other #MeToo laws, see Sexual Harassment Claims in Settlement, Arbitration, and Other Employment Agreements State Laws Chart: Overview.

California A.B. 51 (Enforcement Enjoined)

On October 10, 2019, California's Governor Newsom signed A.B. 51, a law that prohibits employers from entering into arbitration agreements with their employees or otherwise requiring employees to waive substantive or procedural rights as a condition of employment, continued employment, or receiving benefits of employment, regarding claims for any violation under California's Fair Employment and Housing Act (FEHA) or Labor Code. An arbitration agreement or program that requires employees to take affirmative steps to opt out is also prohibited. The law does not apply to:
  • Individuals registered with a self-regulatory agency (such as FINRA) that are required to arbitrate certain disputes.
  • Post-dispute settlement or negotiated severance agreements.
The law prohibits retaliation or discrimination against any individual who refuses to enter into a prohibited agreement. (Cal. Lab. Code § 432.6.) A violation of this Labor Code section constitutes an unfair employment practice under the California Fair Employment and Housing Act (FEHA) (Cal. Gov't Code § 12953).
A.B. 51 was scheduled to apply to contracts entered into on or after January 1, 2020, but its enforcement has been enjoined (see Box, Legal Challenges to A.B. 51).

FAA Preemption and Other Challenges to Arbitration Bans

The FAA requires that arbitration agreements be treated on equal footing with other contracts and requires enforcement of arbitration agreements with employees according to their terms, if the agreement is covered by the FAA (Circuit City, 532 U.S. at 112). Because of the apparent conflict between the state prohibitions and the FAA, several state laws have been challenged on the grounds that the FAA preempts these laws, at least as applied to agreements covered by the FAA.
Although the EFAA now prohibits mandatory predispute arbitration of sexual assault and sexual harassment disputes, except at the claimant's option, it does not otherwise prohibit mandatory arbitration of discrimination or other employment-related claims. There remains an apparent conflict between the FAA and the local laws that more broadly restrict mandatory predispute arbitration agreements as a condition of employment.

Legal Challenges to NY CPLR 7515

Pre-EFAA, the Southern District of New York held in multiple cases that the New York law prohibiting mandatory arbitration of sexual harassment claims is inconsistent with federal law (the FAA) and is therefore unenforceable (Latif v. Morgan Stanley & Co. LLC, , at *2-3 (S.D.N.Y. June 26, 2019); White v. WeWork Cos., Inc., , at *5 (S.D.N.Y. June 11, 2020) (granting motion to compel arbitration, court held that CPLR 7515 is displaced by the FAA and is not a defense to an otherwise enforceable arbitration agreement); Gilbert v. Indeed, Inc., 513 F. Supp. 3d 374, 395-400 (S.D.N.Y. 2021) (applying Texas law, holding that FAA preempted CPLR 7515, expressly rejecting a New York state court decision to the contrary); Rollag, , at *5-6 (granting motion to compel arbitration of plaintiff's FMLA and state law discrimination claims); see also Fuller v. Uber Techs. Inc., , at *2 (N.Y. Sup. Ct. Sept. 25, 2020) (citing Latif, court compelled arbitration despite carveout for sexual harassment claims "to the extent required by applicable law" because the FAA preempts CPLR 7515); see also Charter Comms., Inc. v. Garfin, , at *13-14 (S.D.N.Y. Feb. 23, 2021) (compelling arbitration of plaintiff's sexual harassment claims and rejecting plaintiff's arguments that it should withhold its decision while appeals of conflicting decisions about the FAA's preemption of CPLR 7515 are pending)).
Rejecting the federal district court's conclusion about the FAA's preemption of CPLR 7515, one New York state trial court initially refused to compel arbitration of an employee's sexual harassment claims based on the CPLR prohibition, though there were other grounds for finding that the claims were not covered by the parties' arbitration agreement (Newton v. LVMH Moët Hennessy Louis Vuitton Inc., (Sup. Ct., N.Y. Cnty. July 13, 2020)). The Newton court also held that CPLR 7515 could be applied retroactively to void "prohibited clauses" compelling arbitration of harassment claims even if the agreement predated the statutes effective date (, at *6–7). However, the Appellate Division, First Department, reversed that decision, holding that CPLR 7515 does not apply retroactively, without deciding the statute's validity (Newton v. LVMH Moët Hennessy Louis Vuitton Inc., 140 N.Y.S.3d 699 (N.Y.A.D. 1st Dep't 2021); see also Altman v. Salem Media of N.Y., LLC, 188 A.D.3d 515, 516 (N.Y.A.D. 1st Dep't 2020) (same); Murphy v. Citigroup Global Mkts., Inc., 125 N.Y.S.3d 560, 561 n.1 (1st Dep't 2020); Rodriguez v. Perez, (Sup. Ct. N.Y. Cnty., Feb. 19, 2020)).
The preemption issue is partially mooted by the EFAA, at least regarding sexual harassment claims. However, the CPLR 7515 applies more broadly than the EFAA and prohibits mandatory arbitration of all discrimination claims. It is unclear how the EFAA will impact this New York law.

Legal Challenges to N.J. Stat. Ann. 10:5-12.7 (Section 12.7)

New Jersey's Section 12.7 similarly has been challenged by a non-profit group representing businesses and a trade association in a lawsuit alleging that it violates the FAA and is preempted by federal law (NJ Civ. Justice Inst. v. Grewal, Case 3:19-cv-17518-AET-LHG (D.N.J. Aug. 30, 2019) (complaint)). On March 25, 2021, a federal district court granted plaintiffs' motion for summary judgment, holding that N.J. Stat. Ann. 10:5-12.7 violates the Supremacy Clause of the US Constitution and is preempted by the FAA, "even though even though Section 12.7 does not mention arbitration by name and purports to only apply to certain types of claims." The court enjoined the NJ State Attorney General from enforcing the statute regarding arbitration agreements between employers and employees that are governed by the FAA (NJ Civ. Justice Inst. v. Grewal, (D.N.J. Mar. 25, 2021)). The court noted that its holding is consistent with the conclusion reached by the New Jersey Superior Court in Monmouth County (Janco v. Bay Ridge Auto. Mgmt. Corp., No. MON-L-1967-20 (N.J. Super. Ct. Law. Div. Jan. 22, 2021)) and other courts challenging similar arbitration bans (NJ Civ. Justice Inst., , at *7 n. 3).
A New Jersey appellate court has more recently (but pre-EFAA) held that the FAA preempts the application of Section 12.7 to arbitration agreements governed by the FAA (Antonucci v. Curvature Newco, Inc., 270 A.3d 1088 (N.J. App. Div. 2022)).
The New Jersey law applies more broadly than the EFAA. It is unclear how the EFAA will impact this New Jersey law.

Legal Challenges to A.B. 51

Although the law states that it is not intended to invalidate a written arbitration agreement that is otherwise enforceable under the FAA (Cal. Lab. Code § 432.6(f)), many have argued that A.B. 51 is likely preempted by the FAA and therefore unenforceable. As suspected, the law has been challenged in court.
On December 6, 2019, the US Chamber of Commerce and other business groups filed a lawsuit in the Eastern District of California seeking to enjoin the law on federal preemption grounds (see Chamber of Commerce of the US v. Becerra, Case 2:19-at-01142 (E.D. Cal. Dec. 6, 2019) (complaint for declaratory and injunctive relief)). On December 30, 2019, the court issued a TRO enjoining the implementation of the law just before the scheduled January 1, 2020 effective date (Chamber of Commerce of the US v. Becerra, E.D. Cal. Dec. 30, 2019)). At a January 10, 2020 hearing, the court continued the TRO, and ordered further briefing on the issues of jurisdiction, standing, and severability.
On January 31, 2020, the court granted the preliminarily injunction, enjoining various state agencies from implementing A.B. 51 in its entirety, without the need of posting a bond. In a more detailed decision issued on February 7, 2020, Judge Mueller explained that a court would likely find that A.B. 51 was preempted by the FAA because it:
  • Treats arbitration agreements less favorably than other contracts (A.B. 51 "singles out arbitration by placing uncommon barriers on employers who require contractual waivers of dispute resolution options that bear the defining features of arbitration").
  • Conflicts with the purposes and objectives of the FAA.
(Chamber of Commerce of the US v. Becerra, 438 F. Supp. 3d 1078, 1095-1100 (E.D. Cal. 2020).)
On appeal, the Ninth Circuit:
  • Reversed, in part, the district court's ruling that the FAA preempts A.B. 51.
  • Affirmed that the FAA preempts the civil and criminal penalties under A.B. 51 (Cal. Lab. Code § 433 and Cal. Gov't Code § 12953).
  • Vacated the preliminary injunction enjoining A.B. 51's enforcement, and remanded the case for further proceedings.
(Chamber of Commerce of the US v. Bonta, 13 F.4th 766 (9th Cir. 2021) (Bonta I).)
On August 22, 2022, a majority of the panel voted sua sponte to grant panel rehearing and withdrew its prior decision (Chamber of Commerce of the US v. Bonta, 45 F. 4th 1113 (9th Cir. 2022) (Bonta II)).
On February 15, 2023, the Ninth Circuit filed its decision holding that the FAA preempts A.B. 51 and enjoining enforcement of the law in its entirety (Chamber of Commerce of the US v. Bonta, 62 F.4th 473 (9th Cir. 2023) (Bonta III)). The Court held that:
  • The imposition of criminal penalties on employers entering into arbitration agreements as a condition of employment or continued employment is an "obstacle" to the FAA's purpose of promoting arbitration, even though the law does not render arbitration agreements unenforceable.
  • Rules that burden the formation of an arbitration agreement are an obstacle to the FAA.
  • The FAA preempts A.B. 51 because it:
    • discriminates against arbitration by discouraging or prohibiting the formation of an arbitration agreement; and
    • "burdens the defining feature of arbitration agreements."
(Bonta III, 62 F.4th at 482-87.)
On January 1, 2024, Judge Mueller of the Eastern District of California issued an order permanently enjoining enforcement of A.B. 51 and awarding more than $800,000 in attorneys' fees to the plaintiffs (Chamber of Commerce of the US v. Bonta, Case No. 2:19-cv-02456-KJM-DB (E.D. Cal. Jan. 1, 2024) (order)).

Employer Responses to Legal Challenges

Even if preempted by the FAA, the arbitration prohibitions and restrictions under these laws potentially may be valid and enforceable for claims:
Practitioners anticipate litigation interpreting the EFAA and its scope. To preserve the ability to compel arbitration of employment claims not restricted by the EFAA, employers generally should ensure that their arbitration agreements carve out disputes that cannot be arbitrated under applicable federal law. In jurisdictions with broader arbitration prohibitions subject to preemption or other legal challenges, employers generally benefit from applying FAA arbitration law and should not apply state arbitration law to their disputes.
Some employers may want to include carve outs not only for sexual harassment and assault claims but also for any related discrimination claims arising from the same facts and circumstances to avoid the possibility of having to litigate with the same claimant in multiple forums. Alternatively, some employers may prefer to limit their arbitration agreements to certain categories of employment disputes, such as wage and hour claims, that are not affected by the EFAA.
For more on these and other #MeToo laws, see Sexual Harassment Claims in Settlement, Arbitration, and Other Employment Agreements State Laws Chart: Overview and Article, Expert Q&A on #Metoo-Inspired Employment Laws.

Political Response to Epic Systems

In apparent recognition that many state and local laws may be preempted by the FAA, Washington state has taken an alternative approach to discouraging employers from using mandatory arbitration agreements, without banning them outright. On June 12, 2018, Governor Inslee signed Executive Order 18-03 entitled "Supporting Workers' Rights to Effectively Address Workplace Violations" (E.O. 18-03). The order establishes new procurement procedures for state contract bidding and restricts the state from contracting with those employers that require their employees to sign a mandatory individual arbitration clause or class and collective action waiver as a condition of employment. The order is not limited to sexual harassment claims.
Specifically, E.O. 18-03:
  • Directs all state executive and cabinet agencies to contract with businesses that can demonstrate or will certify that they do not require their workers to sign mandatory arbitration clauses or class or collective action waivers when making purchasing and other procurement decisions (to the extent permissible under state and federal law).
  • Urges all other public and private employers to join the effort to protect workers' rights, which are diminished by requiring mandatory arbitration agreements and class and collective action waivers as a condition of employment or continued employment.
(E.O. 18-03, June 12, 2018.)
Employers in Washington must weigh the potential financial consequences when considering the benefits and drawbacks of mandatory arbitration agreements.

Federal Government Contractors and the Franken Amendment

Federal government contractors that provide services to the Department of Defense may be restricted from requiring their employees to arbitrate certain claims, including claims related to sexual harassment and assault. First adopted in the FY 2010 Defense Appropriations Act (DAA), the so-called Franken Amendment prohibits covered contractors from requiring employees to arbitrate Title VII claims or tort claims related to or arising out of sexual assault or harassment.
The Franken Amendment has been extended each year (see, for example, the 2022 DAA, incorporated into the Consolidated Appropriations Act of 2022 (CAA-21), § 8092 (P.L. 117-103) (Mar. 15, 2022)). It is also codified as a federal regulation (48 C.F.R. §§ 222.7402(a), 222.7405, 252.222-7006).
The few cases interpreting the effect of the Franken Amendment on the enforceability of arbitration agreements consistently hold that it merely requires that certain defense contractors must agree not to enter into any agreement requiring employees to arbitrate certain claims, but does not invalidate or render unenforceable arbitration agreements that were entered into in contravention of the Franken Amendment (see, for example, Schweyen v. Univ. of Montana-Missoula, , at *3 (D. Mont. May 5, 2022); Lee v. Google, Inc., , at *5 (Cal. Super. Sep. 14, 2018)).

California Private Attorneys General Act (PAGA) Claims

The California Supreme Court held in Iskanian v. CLS Transp. Los Angeles, LLC, that representative actions under PAGA may not be waived by an arbitration agreement (59 Cal. 4th 348 (2014)). Because PAGA claims are frequently included in wage and hour litigation, employers can either:
  • Bifurcate claims, that is, the PAGA representative claim would be heard in court and all other claims would be heard in arbitration.
  • Permit PAGA representative claims to be heard in arbitration.
While there had been a split between California state and federal courts whether class waivers of PAGA claims are enforceable, several post-Epic decisions continued to follow Iskanian and refused to compel arbitration of both individual and representative PAGA claims. However, in Viking River Cruises, Inc. v. Moriana, the US Supreme Court held that:
  • The FAA preempts the rule of Iskanian regarding severability.
  • A plaintiff's individual PAGA claims for wage violations the plaintiff suffered are severable from the representative PAGA claims predicated on violations suffered by other employees and the individual claims may be arbitrated.
(142 S. Ct. 1906 (2022)).
For the latest and more details on PAGA claims and arbitration agreements, see: