Contract Formation Issues in Employment Arbitration

Abstract:     
American courts operate under the strong presumptions that the Federal Arbitration Act makes nearly all claims arbitrable and nearly all arbitration agreements enforceable. However, the FAA Section 2 provides that arbitration agreements shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract. This apparent reservation of a broad role for state contract law is undercut significantly by two Supreme Court doctrines: the FAA preemption doctrine (which forbids state courts and legislatures from singling out arbitration agreements for inferior treatment) and the separability doctrine (which requires that contract-law challenges directed at the contract as a whole - as opposed to at the arbitration clause specifically - be decided by arbitrators rather than courts).

The Court has interpreted both of these doctrines broadly. Though the broad interpretation of these doctrines has been extensively criticized, the effect nonetheless has been to constrict the applicability of state contract law to arbitration agreements. This, in turn, has created considerable tension between those doctrines and the Section 2 reservation of state contract law. This article discusses and evaluates several potential limitations on the preemption and separability doctrines, particularly as applied to employment arbitration agreements, which would preserve a broader role for state contract law.

The Supreme Court's FAA preemption and separability doctrines frame the big picture of the scope of state authority regarding arbitral contract formation. After discussing and evaluating these doctrines, this article shifts focus and examines in detail how state courts have applied state contract law to employment arbitration agreements. State contract law, of course, differs considerably from state to state. This article does not examine in detail this state-to-state variation generally (e.g., on different approaches to mutuality), but instead focuses specifically on how this variation affects judicial approaches to employment arbitration agreements. This article examines five issues that often are raised in contract-formation challenges to the enforceability of employment arbitration agreements: notice, consent, the employer's retention of a right unilaterally to modify the agreement, non-reciprocal obligations to arbitrate, and consideration.

Keywords: arbitration, employment, contract, separability, preemption

JEL Classifications: K12, K31

Accepted Paper Series