A New Legal Framework for Employee and Consumer Arbitration Agreements

Abstract

If an arbitration clause in an employment or consumer agreement contains a harsh term, such as an abbreviated statute of limitations or a provision requiring arbitration in a distant location, judges will sometimes sever the harsh term and enforce the rest of the arbitration clause. In fact, some judges believe the Federal Arbitration Act and its strong federal policy favoring arbitration require severance of any harsh provisions so that arbitration will still occur minus the oppressive terms. This severance approach may encourage drafting parties to overreach and include harsh terms in an arbitration clause if the only penalty at the end of the day is mere severance of such terms. This Article demonstrates that the Federal Arbitration Act embodies a simple, binary approach to the enforcement of arbitration agreements: either an arbitration agreement is fully enforceable, or it is not enforceable at all. As a matter of federal law, the text, history, and policy of the Federal Arbitration Act require courts to invalidate an arbitration clause in its entirety if it contains any harsh provisions. Severance of harsh terms should not be permitted under the FAA in order to rescue parties who draft arbitration clauses with oppressive terms.

Keywords: arbitration, arbitration agreements, sexual harassment, employment law