The Federal Arbitration Act has seen its most significant amendments in decades, and businesses that rely on mandatory arbitration clauses need to act now to assess their exposure and update their agreements.
The most impactful change is the new requirement for heightened disclosure when arbitration clauses are embedded in consumer contracts. Companies must now present arbitration provisions in a clear, standalone section with specific language in at least 12-point font. Buried or incorporated-by-reference arbitration clauses are now presumptively unenforceable in consumer contexts.
The amendments also restrict the use of mass arbitration demand fees as a defense tactic. Several companies had used astronomical upfront fees to effectively foreclose consumer access to arbitration despite having mandatory clauses in their contracts. The new rules cap these fees and establish a streamlined process for low-dollar consumer claims.
For employment arbitration, the existing Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act provisions have been expanded. The new amendments extend the right to opt out of arbitration to additional categories of employment disputes, including wage theft and retaliation claims.
Class action waivers in arbitration agreements remain generally enforceable under the amendments, but must be presented with greater clarity and are subject to new unconscionability review standards in several jurisdictions.
For businesses, the immediate action items are: audit all standard form contracts with arbitration clauses, engage counsel to redraft non-compliant provisions, and assess whether current arbitration forum selection remains strategically advantageous given the new landscape.