Extending Owbpa Notice and Consent Protections to Arbitration Agreements Involving Employees and Consumers

Abstract:     
The Federal Arbitration Act (FAA) was created in 1925 to permit judicial enforcement of arbitration agreements covering commercial contract disputes between parties with roughly equal bargaining power. Today, however, the FAA is the legal authority for judicial enforcement of arbitration agreements covering not only contractual claims but also statutory claims, and not only of disputes between commercial entities but also disputes involving parties with grossly disparate bargaining power such as companies and employees/consumers. Moreover, the Supreme Court has interpreted the FAA as strongly favoring arbitration, and the Court has used preemption analysis to restrict the ability of states to regulate arbitration agreements. This has led many commentators to argue that the FAA is ill-suited to its new use - that it is unfair to permit companies to foist arbitration agreements on employees and consumers who have little understanding of what they are signing, and in any event have no meaningful choice if they want the job or product or service the company is offering.

In 1990, Congress faced a similar problem in a different context. Congress was amending the Age Discrimination in Employment Act (ADEA) to prohibit employers from discriminating on the basis of age in the administration of employee benefit plans. Congress wished to give employees the ability to agree to early retirement and to settle benefits claims, but was concerned that employers would coerce older employees into accepting grossly unfair agreements that the employees did not understand. Congress responded by passing the Older Workers Benefit Protection Act (OWBPA). The OWBPA presumes that a waiver of ADEA rights is not knowing and voluntary (and therefore is unenforceable) unless certain procedural requirements are met. For example, the waiver must be written in a manner calculated to be understood by an average employee, the employer must advise the employee in writing to consult with an attorney prior to signing the agreement, and the employer must give the employee at least twenty-one days within which to consider the agreement.

This article argues that Congress should amend the FAA to add suitably-modified OWBPA-like notice requirements to arbitration agreements directed at most employees and consumers. This approach will help ensure that employees and consumers understand what it is they are signing, and thereby may encourage some companies to draft arbitration agreements that are substantively more balanced. This approach is not, however, a panacea that will cure all the ills of arbitration, but instead is designed as a politically feasible, incremental improvement on employment and consumer arbitration.

Keywords: arbitration, OWBPA, notice, consent

JEL Classifications: K31, K41

Accepted Paper Series