A Blueprint for States To Solve the Mandatory Arbitration Problem While Avoiding FAA Preemption

By Sam Cleveland. Full Text.

Employers are increasingly using mandatory pre-dispute arbitration clauses in employment contracts. Doing so gives employers benefits, such as privacy, the ability to select the arbitrators, and repeat players benefits, but they often leave employees without meaningful recourse when they are wronged, especially when class action waivers are used. This effect on employees is unjust and unpalatable in a society dedicated to the rule of law. However, there is a dearth of workable, effective solutions to this growing problem. Action at the federal level is unlikely and many attempts by states to soften the ill-effects of arbitration have been held to be preempted by the Federal Arbitration Act (FAA). The challenge then, which this Note attempts to find a solution to, is to craft a new rule that would mitigate the ill-effects of arbitration while avoiding FAA preemption.

To that end, this Note provides a path for state legislature and state courts to effect such a rule. The key to avoiding FAA preemption is to craft a rule that is of general applicability, but that will still combat the use of mandatory arbitration clauses. The way this Note proposes to achieve that is to institute rules that address the fact that many of these adhesive contracts offend basic contractual principles such as the requirement of mutual assent.

States can enact laws that require terms that typically aren’t assented to by the non-drafting party, so called “invisible terms,” to be highlighted or brought to the attention of the non-drafting party at the time of contracting. Furthermore, true assent requires the non-drafting party to not only know the clause is in the contract, but also to understand the term and the implications that flow from it. If states enact rules that achieve true assent, the use of arbitration clauses, or at the very least the most odious uses of them, are likely to decrease. This would be a desirable outcome that helps protect the most vulnerable in our society and would reaffirm this country’s commitment to preserving the right to vindicate one’s claims.