## Arbitration clauses + agreements in California **Arbitration clauses** require parties to resolve disputes through private arbitration instead of court litigation. California courts generally enforce them under the **Federal Arbitration Act (FAA)** — but specific limitations apply. ## Federal Arbitration Act (FAA) **9 USC § 1 et seq.:** - Strong federal policy favoring arbitration - Preempts most state restrictions - Applies to contracts "involving commerce" - Limited exceptions (transportation workers, employment) **Three pillars:** **1. Enforceability** — arbitration agreements are valid + irrevocable **2. Compelling arbitration** — courts can order parties to arbitrate **3. Limited review** — court review of arbitration awards is narrow ## Where arbitration clauses appear **Common contracts:** - Employment contracts - Consumer purchase agreements - Credit card agreements - Cell phone / internet service - Online terms of service - Real-estate purchase agreements - Investor agreements - Construction contracts - Healthcare agreements - Online dispute services **Often hidden in fine print or click-through.** ## Pros + cons of arbitration **Pros (often favoring drafter):** - Faster than court (months vs years) - Cheaper than court (sometimes) - Confidential proceedings - Specialized arbitrators - Limited discovery - Limited appeals - Predictable rules - International enforceability (NY Convention) **Cons (often disfavoring weaker party):** - No jury trial - Limited discovery - Limited appeal rights - Expensive arbitrator fees - Often industry-friendly arbitrators - Class-action waivers (often) - Confidentiality protects bad actors - Costs may exceed claim value - One-sided clauses common ## Defenses to arbitration enforcement **1. Unconscionability:** **Procedural unconscionability:** - Adhesion contract - Take-it-or-leave-it - Hidden / fine print - Sophistication disparity - Pre-dispute waivers of fundamental rights **Substantive unconscionability:** - One-sided terms - Excessive fees - Inadequate remedies - Limitation on statutory rights - Lack of mutuality (only one party arbitrates) **Both required in most states.** **2. No agreement formed:** - Failed offer / acceptance - Click-through issues (Sgouros v. TransUnion factors) - Unread terms (sometimes) - Fraud in inducement - Duress **3. Specific terms invalid:** - Class-action waivers - Statutory rights waivers - Excessive fee-shifting - Inadequate process **4. Public policy:** - Specific federal exemptions - Sexual harassment (EFAA, 2022) - Limited ## Class-action waivers **The big controversy:** - Most clauses include class-action waivers - Forces individual arbitration - Effectively eliminates many small claims - AT&T v. Concepcion (2011) — generally enforceable - Epic Systems v. Lewis (2018) — enforceable in employment **Mass arbitration response:** - Plaintiffs file thousands of individual arbitrations - Companies face crushing arbitration fees - Some companies trying to escape arbitration - Specific procedures + tactics ## EFAA (2022) — sexual harassment carve-out **Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act:** - Effective March 3, 2022 - Plaintiffs can choose court instead of arbitration - Sexual harassment + sexual assault claims - Class waivers also invalidated - Major shift for employees **Practical effect:** - Employers cannot force arbitration of these claims - Plaintiffs can sue in court - Class actions possible - Even if employee signed arbitration agreement **Limited to:** - Sexual assault claims - Sexual harassment claims - Plaintiff's election ## State-law restrictions **${s.name} may have:** - Specific arbitration provisions - Specific consumer protections - Specific employment limitations - Specific procedural requirements **FAA preemption** generally limits state restrictions, but exceptions exist: - General contract defenses - Unconscionability - Duress / fraud - Specific federal carve-outs ## Drafting effective arbitration clauses **To maximize enforceability:** - **Conspicuous** — bold, separate, signature line - **Reciprocal** — both parties arbitrate - **Reasonable fees** — not prohibitive - **Adequate process** — discovery, hearing, written award - **Specific arbitrator selection** — fair process - **Reasonable location** — not difficult to attend - **Adequate remedies** — same as court generally **Common drafting elements:** - Scope of disputes covered - Selected arbitration administrator (AAA, JAMS, etc.) - Governing rules - Number of arbitrators - Discovery provisions - Confidentiality - Class-action waiver - Fee allocation - Award + entry of judgment - Severability ## Arbitration administrators **Major providers:** **AAA (American Arbitration Association):** - Largest US administrator - Consumer + commercial rules - Most experienced **JAMS:** - Premium provider - Generally former judges - More expensive - Strong reputation **FINRA:** - Securities industry - Mandatory for members **International:** - ICC (International Chamber of Commerce) - ICDR (International Centre for Dispute Resolution) - LCIA (London Court) - Specific rules for international cases ## Process **Typical arbitration:** **1. Demand for arbitration:** - Written notice - Statement of claim - Filing fee - Often online **2. Selection of arbitrator(s):** - 1 or 3 arbitrators - Selection from list - Strikes / ranking - Disclosure requirements **3. Preliminary hearing:** - Procedural matters - Discovery scope - Schedule - Briefing **4. Discovery:** - Limited compared to court - Documents typically - Depositions sometimes - Experts permitted **5. Hearing:** - Witnesses + evidence - More flexible than court - May be in person or video - Briefing typically **6. Award:** - Written award typically - Reasoned or unreasoned - Final + binding - Entry of judgment in court ## Limited court review **Grounds to vacate award:** - Corruption / fraud - Arbitrator partiality - Refusal to hear evidence - Exceeded powers - Manifest disregard of law (some courts) **NOT grounds:** - Wrong on facts - Wrong on law - Insufficient evidence - Different result expected - Disagreement with reasoning **Awards rarely vacated.** ## Cost considerations **Arbitration costs:** - **Filing fees** — $200-$10,000+ depending on amount - **Administrative fees** — variable - **Arbitrator fees** — $300-$1,500/hour typical - **Discovery costs** — limited but real - **Attorney fees** — similar to litigation - **Expert witnesses** — varies **Often expensive — sometimes more than litigation.** ## Recent trends **Mass arbitration (early 2020s):** - Plaintiffs file thousands of individual arbitrations - Companies face millions in arbitration fees - Some seeking to escape arbitration - Active litigation **Anti-arbitration legislation:** - EFAA (2022) — sexual harassment - Various proposed laws - State-level efforts - Increasing scrutiny **Employment arbitration declining:** - Many large employers reconsidering - High costs of mass arbitration - Reputational issues - Some shifting back to court ## Strategic considerations **For drafters:** - Carefully balance enforceability + fairness - Consider mass arbitration risk - EFAA implications - Industry standards - Specific dispute scenarios **For challengers:** - Specific unconscionability arguments - EFAA election (if applicable) - Procedural defects - Cost-prohibition arguments - Public policy violations **For users:** - Read agreements before signing - Negotiate where possible - Consider alternatives - Document signing process ## What you should do If facing arbitration issues in California: hire experienced commercial / employment / consumer attorney depending on context. Many California attorneys handle arbitration. EFAA (sexual harassment) cases have specific opportunities. Arbitration enforcement issues require sophisticated analysis. Costs of arbitration vs litigation often comparable but very different process. --- *This guide is general information about federal + California law as of mid-2026 and is not legal advice. Arbitration is technical. Talk to a licensed California attorney about your specific situation.*