Forced Arbitration in the Fortune 500

By DAVID HORTON. Full Text.

As the Federal Arbitration Act (FAA) nears its centennial, its most controversial byproduct—forced arbitration—has entered uncharted territory. For years, companies exploited their power over fine print to produce ambitious dispute resolution regimes. This trend reached its apex in the 2010s, when the Supreme Court held that arbitration is incompatible with class actions and gave its blessing to delegation provisions, which allow the arbitrator to decide whether a case must be arbitrated. But around 2020, the dynamic changed. Plaintiffs’ lawyers discovered a tactic called “mass arbitration” that gains settlement leverage by bombarding defendants with scores of individual claims. In addition, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which excludes claims of sexual wrongdoing from the FAA, and is weighing other anti-arbitration measures.

But one fact that shines through the debate over these developments is how little we know about the prevalence and content of forced arbitration clauses. To be sure, some scholars have published helpful surveys of arbitration agreements. Yet this work tends to be out of date, based on tiny sample sizes, restricted to certain industries, and focused on consumer transactions to the exclusion of employment arrangements.

This Article improves our grasp of forced arbitration through an empirical study of the arbitration provisions of the largest corporations in America (the Fortune 500). This original, hand-collected dataset of 582 forced clauses yields three main insights. First, big businesses actively engage in procedural rulemaking. Indeed, nearly eighty percent of Fortune 500 enterprises mandate arbitration for at least some of their customers or workers (or both). Second, private tribunals are probably less hospitable to plaintiffs than the judiciary. Seventy-seven percent of forced arbitration clauses expressly prohibit class actions, seventy-eight percent contain delegation clauses, and about half feature a term that may be substantively unconscionable. Third, and most surprisingly, the drafting quality varies tremendously. Some private procedural codes reflect the meticulous care of a watchmaker, but others are marred by shocking mistakes. The Article then explains how its findings shed light on proposals to weaken the FAA, mass arbitration, and judicial review of forced arbitration clauses under the unconscionability doctrine.