Mandatory Arbitration and the Federal Arbitration Act (CRS Report for Congress)
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| Release Date |
Sept. 20, 2017 |
| Report Number |
R44960 |
| Report Type |
Report |
| Authors |
Jon O. Shimabukuro; Jennifer A. Staman |
| Source Agency |
Congressional Research Service |
Summary:
Arbitration is a method of legal dispute resolution in which a neutral, private third party, rather
than a judge or jury, renders a decision on a particular matter. Under a growing number of
consumer and employment agreements, companies have come to require arbitration to resolve
disputes. While arbitration is often viewed as an expeditious and economical alternative to
litigation, consumer advocates and others contend that mandatory arbitration agreements create
one-sided arrangements that deny consumers and employees advantages afforded by a judicial
proceeding.
The Federal Arbitration Act (FAA) was enacted in 1925 to ensure the validity and enforcement of
arbitration agreements in any “maritime transaction or ... contract evidencing a transaction
involving commerce[.]” The U.S. Supreme Court (Court) has recognized the FAA as evidencing
“a national policy favoring arbitration.” The application of the FAA, however, particularly in light
of various state law requirements and the use of different types of arbitration agreements, has
raised numerous legal questions and been the subject of several cases before the Court.
The question of whether the FAA preempts a state law or judicial rule is a subject of frequent
litigation. In these cases, the Court has routinely held that the FAA supersedes state requirements
that restrain the enforceability of mandatory arbitration agreements. This report examines the
FAA and reviews the Court’s decisions involving the statute’s preemption of state law
requirements. The report also explores the Court’s decisions involving mandatory arbitration
agreements that prohibit a consumer or employee from maintaining a class or collective action. In
its October 2017 term, the Court will consider three consolidated cases that challenge such
agreements on the grounds that they violate the right to engage in “other concerted activities”
under the National Labor Relations Act (NLRA).
Finally, concern over a perceived lack of “meaningful choice” to decide whether to submit a
claim to arbitration has prompted regulatory activity, as well as legislation that would amend the
FAA to render certain types of pre-dispute arbitration agreements unenforceable. The report
discusses some recent examples of federal regulatory action that aim to restrict the use of
mandatory arbitration in the consumer arena, and reviews bills like the Arbitration Fairness Act of
2017 (H.R. 1374/S. 537), which would prohibit the enforcement of an arbitration agreement that
requires arbitration for an employment, consumer, antitrust, or civil rights dispute if the
agreement was executed prior to the dispute’s occurrence.
