Summary. Employment arbitration agreements are simultaneously more enforceable and more limited than a decade ago. Epic Systems settled that class and collective action waivers are enforceable, and the Court has continued removing obstacles to compelling arbitration. Meanwhile Congress carved sexual assault and harassment claims out of the FAA entirely, state legislatures have tested preemption, transportation worker exemptions have expanded, and mass arbitration turned the employer-favorable fee structure into a liability. This article covers what the FAA does and does not reach, how the EFAA operates and how broadly, the doctrines that still defeat agreements, and how to draft and administer a program that works.

An employer rolls out an arbitration program. Every employee signs an agreement with a class and collective action waiver. The company's counsel is confident, and mostly right: after Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), the waiver is enforceable, and the National Labor Relations Act does not override it.

Three years later:

A group of 4,300 delivery drivers files individual arbitration demands on the same day, through the same firm, alleging unpaid overtime. The employer's own agreement requires it to pay the arbitration filing fees. The administrator's fee schedule produces an initial assessment in the millions of dollars before a single case is heard on the merits. The class waiver worked exactly as designed, and it produced a worse outcome than a class action would have.

A former manager files a harassment suit in federal court. The employer moves to compel arbitration and loses, because the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, 9 U.S.C. §§ 401–402, gives the plaintiff the option to invalidate the agreement as to that claim — and, on the reading most courts have adopted, as to the entire case in which the claim is asserted, including the wage claims joined with it.

A driver whose route never crosses a state line successfully argues that he is a transportation worker engaged in interstate commerce and therefore exempt from the FAA under § 1, sending his case to court.

Nothing about the agreement was badly drafted. The landscape moved.

What the FAA does

The Federal Arbitration Act, 9 U.S.C. §§ 1–16, makes written arbitration agreements in contracts evidencing a transaction involving commerce "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." § 2.

Two consequences follow, and they govern nearly everything.

The savings clause permits generally applicable contract defenses — fraud, duress, unconscionability — but not defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011). This is the mechanism by which the FAA preempts state rules hostile to arbitration, and it is the reason most state legislative attempts to restrict employment arbitration have failed.

The Act's procedural machinery: § 3 requires a court to stay proceedings on issues referable to arbitration; § 4 permits a motion to compel; § 9 provides for confirmation of awards; § 10 provides the exclusive and extremely narrow grounds for vacatur — corruption, fraud, evident partiality, misconduct in refusing evidence, or arbitrators exceeding their powers; and § 16 governs appeals, permitting an immediate appeal from an order denying arbitration but not from one compelling it.

Recent decisions have made the machinery more employer-friendly:

And one that cut the other way:

  • Morgan v. Sundance, Inc., 596 U.S. 411 (2022) — a party may waive the right to arbitrate by litigating, and the opposing party need not show prejudice. Courts apply ordinary waiver principles. The practical instruction is unambiguous: move to compel at the earliest opportunity, and do not litigate the merits first.

The § 1 exemption

9 U.S.C. § 1 excludes from the Act "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."

The Supreme Court has repeatedly addressed its scope:

Where this leaves employers: delivery drivers, warehouse workers who load and unload interstate shipments, last-mile drivers, and gig-economy couriers may be exempt from the FAA even if their own routes are intrastate, because the goods continue in a stream of interstate commerce. The exemption's outer boundary — how attenuated the connection may be — remains contested in the circuits.

The practical response is a state arbitration act fallback clause: a provision stating that if the FAA does not apply, the agreement is governed by the applicable state arbitration statute. Most state acts are modeled on the Uniform Arbitration Act or the Revised UAA and enforce agreements on similar terms — though without FAA preemption, state-law restrictions on employment arbitration become operative, which is precisely why some states' restrictions were drafted to apply where the FAA does not.

Epic Systems and class waivers

Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), resolved a long conflict. Employees argued that § 7 of the NLRA, protecting concerted activity for mutual aid or protection, made class and collective action waivers unlawful, and that such agreements were therefore unenforceable under the FAA's savings clause as illegal contracts.

The Court disagreed, 5–4. The NLRA does not clearly and manifestly override the FAA; § 7 addresses organizing and collective bargaining, not the procedures of a legal proceeding; and the savings clause does not save a defense that targets arbitration's fundamental attributes, of which individualized proceedings is one.

Consequences. Class and collective action waivers in employment arbitration agreements are enforceable, including as to FLSA collective actions and Rule 23 class actions. Employers that adopted them have largely eliminated wage-and-hour class exposure in the courts.

What survives:

  • EEOC enforcement actions. The EEOC is not a party to the agreement and may seek victim-specific relief on behalf of an employee bound by one. EEOC v. Waffle House, Inc., 534 U.S. 279 (2002).
  • NLRB unfair labor practice proceedings on independent grounds — an agreement that would be read by employees to prohibit filing Board charges remains unlawful, and the Board has continued to police the manner in which agreements are presented, including threats of discharge for refusing to sign.
  • Public enforcement actions by state agencies and attorneys general.
  • Claims Congress has exempted, addressed next.

The EFAA

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, codified at 9 U.S.C. §§ 401–402, is the most significant limitation on employment arbitration in decades.

What it does. At the election of the person alleging the conduct, no predispute arbitration agreement or predispute joint-action waiver is valid or enforceable with respect to a case filed under federal, tribal, or state law relating to a sexual assault dispute or a sexual harassment dispute.

Key features:

The employee elects. The agreement is not void; it is voidable at the plaintiff's option. An employee who prefers arbitration may still arbitrate.

Predispute agreements only. An agreement to arbitrate entered after the dispute arises is enforceable, which is why post-dispute arbitration agreements have become a meaningful settlement tool.

Joint-action waivers are covered too, so a class or collective waiver is invalid as to a covered case at the plaintiff's election.

Applicability. The Act applies to disputes or claims that arise or accrue on or after March 3, 2022, regardless of when the agreement was signed. Courts have grappled with what "arise or accrue" means for continuing violations and for conduct spanning the effective date, generally holding that a hostile environment continuing after the date is covered.

Court, not arbitrator, decides. The statute expressly provides that the applicability of the chapter and the validity and enforceability of the agreement are determined under federal law by a court, irrespective of a delegation clause. This is a direct override of Henry Schein for covered cases.

The scope question that matters most. The Act applies to a "case ... relating to" a covered dispute. The predominant reading among courts is that this reaches the entire case, not merely the harassment claim — so an employee who pleads a sexual harassment claim alongside wage claims, discrimination claims, and retaliation claims may keep all of them in court. Some decisions have limited the effect to claims sufficiently related to the covered dispute, and a few have separated unrelated claims. The result is that pleading a harassment claim can defeat arbitration of an entire multi-claim case, which has changed how plaintiffs' counsel draft complaints and has made the sufficiency of the harassment allegation itself a litigated threshold question.

The SPEAK OUT Act, enacted the following year, is a companion: it makes predispute nondisparagement and nondisclosure clauses unenforceable with respect to sexual assault and sexual harassment disputes. Note the same predispute limitation — settlement agreements resolving an existing dispute may still include confidentiality, subject to state law restrictions, several of which are broader.

Practical drafting responses:

  • Carve out covered claims expressly, which costs nothing and avoids arguments about the agreement's validity as a whole.
  • Keep a robust severability clause.
  • Recognize that the agreement's practical value is now limited for any employee who may assert a harassment claim, which affects how much a program is worth.
  • Use post-dispute arbitration agreements where both sides prefer a private forum.

Related legislative activity. Bills to extend the EFAA model to race discrimination claims and to employment claims generally have been introduced repeatedly. State legislatures have enacted restrictions of their own — some limited to nondisclosure provisions, which are not preempted, and some purporting to bar employment arbitration outright, which have generally been held preempted as applied to FAA-covered agreements.

What still defeats an agreement

Formation. The threshold question, decided under state contract law, and where employers lose most often on avoidable grounds:

  • No mutual assent — an agreement buried in a handbook that the employer reserves the right to modify unilaterally, with no acknowledgment signed.
  • No consideration in states requiring it for a mid-employment agreement, where continued at-will employment may or may not suffice.
  • Electronic signature problems — the employer cannot authenticate that this employee, rather than a shared terminal or a manager, clicked accept. Courts have refused to compel arbitration on this ground with some frequency, and the fix is an auditable identity-verified acknowledgment.
  • Illusory promise — an agreement the employer may modify or revoke at will, which several states hold unenforceable for lack of mutuality of obligation. Require notice and prospective-only effect for any amendment.

Unconscionability, which requires both procedural and substantive elements in most states, on a sliding scale. Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000), remains the most influential framework, requiring for statutory claims: a neutral arbitrator; adequate discovery; a written award sufficient for limited review; all remedies available in court; and no requirement that the employee bear costs unique to arbitration.

Provisions that draw substantive unconscionability findings: fee-splitting that imposes forum costs on the employee; shortened limitations periods; limits on remedies, including caps on damages or elimination of punitive damages or attorney's fees; one-sided coverage, where the employee's claims must be arbitrated and the employer's claims (typically for injunctive relief on trade secrets and non-competes) may go to court; inconvenient forum selection; confidentiality provisions preventing employees from discussing outcomes; and restricted discovery inadequate to prove a discrimination claim.

Waiver by litigation conduct. After Morgan v. Sundance, no prejudice is required. Filing an answer, serving discovery, moving to dismiss on the merits, or participating in scheduling can waive the right. Move to compel first.

PAGA and public enforcement. California's Private Attorneys General Act produced a distinctive line of authority. Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022), held that the FAA preempts a rule barring division of PAGA actions into individual and non-individual claims, so an employer may compel arbitration of the individual PAGA claim — and suggested that the plaintiff would then lack standing to maintain the representative claim. The California Supreme Court in Adolph v. Uber Technologies, Inc. rejected that suggestion as a matter of state law, holding that a plaintiff retains standing to pursue the representative claim in court while the individual claim is arbitrated. The practical result is a bifurcated proceeding, which is generally worse for employers than either alternative.

Mass arbitration

The most consequential practical development, and one entirely created by the employer-side victory in Epic Systems.

How it works. Plaintiffs' firms aggregate hundreds or thousands of individual claimants and file simultaneous individual arbitration demands. Because the agreement requires individual proceedings and typically requires the employer to pay the filing and arbitrator fees — a term employers adopted to defeat unconscionability challenges — the administrator assesses fees per case. At standard employment schedules, an initial assessment for several thousand cases reaches into the millions before any merits determination.

The dilemma. Pay the fees, or refuse and risk a court holding that the employer is in material breach of its own agreement — which in several cases has resulted in orders permitting claimants to proceed in court, sanctions, and, under state statutes, penalties for late payment of arbitration fees. California's statute is the strictest: an employer that fails to pay fees within 30 days of the due date is in material breach, and the employee may withdraw from arbitration and proceed in court with a mandatory award of fees and costs.

Responses that have been tried:

  • Bellwether or batching provisions — a defined number of test cases proceed first, with the remainder stayed and the results informing a global resolution. Administrators have adopted mass arbitration supplementary rules along these lines, and courts have generally enforced well-drafted batching provisions.
  • Mandatory pre-arbitration processes — informal negotiation or mediation before a demand may be filed, with individualized requirements that prevent bulk filing. Enforceable if genuine, vulnerable if designed purely to obstruct.
  • Fee-shifting adjustments — requiring claimants to bear a modest, non-prohibitive share, which trades mass arbitration risk for unconscionability risk.
  • Opt-out provisions, which strengthen the enforceability of the agreement generally and reduce the pool of bound claimants.
  • Choosing an administrator whose mass arbitration protocol and fee schedule the employer has actually read. The differences between administrators are substantial.
  • Reconsidering the program. For some workforces, the honest answer is that a class action in court is cheaper and more predictable than the mass arbitration exposure the waiver creates.

Drafting and administering a program

Scope. Define covered claims precisely; carve out EFAA claims, workers' compensation, unemployment, NLRB charges, and administrative agency filings; and make the agreement mutual as to claims and, ideally, as to any provisional relief exception.

Formation. Use a standalone agreement, not a handbook provision. Obtain a signed or auditable electronic acknowledgment with identity verification and a retained audit trail. Provide the agreement in advance and in the employee's language where appropriate. Consider a 30-day opt-out, which substantially strengthens enforceability at modest cost.

Terms that survive review. A neutral administrator and a selection process neither party controls; the employer bears all costs unique to arbitration; adequate discovery, ideally by reference to a rule set; all statutory remedies preserved, including attorney's fees and punitive damages; a written reasoned award; the same limitations period as in court; no confidentiality obligation on the employee beyond the proceedings themselves; a venue where the employee worked; severability; a delegation clause (recognizing it does not apply to EFAA questions or § 1 questions); a FAA/state act fallback; and class and collective waivers with a non-severability provision if the employer would rather litigate a class action in court than arbitrate one.

Administration. Move to compel immediately. Budget for fees. Track filings for aggregation patterns. Train managers not to threaten employees over signing, which generates independent NLRB exposure. And review the program annually against a legal landscape that has changed materially in each of the last several years.

Conclusion

Three points capture where this stands.

Arbitration agreements are more enforceable than ever, and less valuable than they were. Epic Systems and the procedural decisions that followed removed most obstacles to compelling arbitration. The EFAA removed an entire category of claims — and, on the prevailing reading, entire cases containing them.

Mass arbitration inverted the economics. The individualized-proceedings requirement that eliminated class exposure created a fee exposure that can exceed it, and it was built out of the very terms employers adopted to survive unconscionability review. Any program without a batching or bellwether mechanism and a read of the administrator's fee schedule is carrying an unpriced risk.

Formation is where employers actually lose. Not preemption, not unconscionability, but the inability to prove that this employee agreed to this document. A standalone agreement, a verified acknowledgment, an audit trail, and a non-illusory amendment provision prevent more failures than any drafting refinement.

Should an employer have a program at all?

The honest answer depends on workforce composition, claim history, and jurisdiction, and it is worth working through rather than assuming.

Arguments for. Individual proceedings eliminate class and collective exposure for wage-and-hour claims, which for a large hourly workforce is the single largest litigation risk. Arbitration is private, generally faster, and produces no public record and no reported decision. Awards are essentially unreviewable, which cuts both ways but eliminates appellate risk on a bad ruling. Discovery is narrower, reducing cost in ordinary single-plaintiff cases. And in some jurisdictions, arbitrators award less than juries on non-economic damages.

Arguments against. Mass arbitration can cost more than the class action it prevents, and the employer pays the forum costs it agreed to bear. The EFAA removes harassment cases — frequently the highest-exposure individual claims — and, on the prevailing reading, everything joined with them. Motions to dismiss and summary judgment are less effective before an arbitrator with no appellate accountability, so weak claims are more likely to reach a hearing. There is no meaningful appeal from an erroneous award. Attorney's fees still run. And employee relations costs are real: a mandatory program presented as a condition of employment is a persistent source of resentment and, in unionized or organizing environments, an organizing issue.

A middle path that has become more common: a program covering wage-and-hour and contract claims with a genuine 30-day opt-out, express EFAA and agency carve-outs, batching provisions, and a commitment to bear all forum costs. It preserves the class-waiver benefit where it matters most, removes the categories where arbitration is least valuable, and produces an agreement far more likely to be enforced when tested.

For an employer with a small professional workforce and no realistic class exposure, a program may not be worth having at all. The benefit of an arbitration agreement is proportional to class risk, and where that risk is low, the employer has traded appellate review and dispositive motion practice for very little.

A drafting walkthrough

Consider each provision by what it is doing.

"Covered claims." List them, then carve out: claims that cannot be arbitrated as a matter of law; workers' compensation and unemployment; ERISA benefit claims subject to plan procedures; administrative charges with the EEOC, NLRB, DOL, OSHA, SEC, and state agencies (the agreement must be clear that filing a charge is permitted, because a contrary reading is an independent unfair labor practice); and sexual assault and sexual harassment disputes under the EFAA. Carving out the last category costs nothing, since the employee can invalidate the agreement as to those claims in any event, and it removes an argument that the agreement is invalid as a whole.

"Mutual." Both parties arbitrate. If the employer wants a court available for trade secret injunctions, make the provisional-relief exception mutual — either party may seek provisional relief in court pending arbitration. A one-sided carve-out is the most frequently cited indicator of substantive unconscionability.

"Costs." The employer pays all fees and costs unique to arbitration, including the arbitrator's compensation and the administrator's fees. This is required in many jurisdictions for statutory claims and is the term that creates mass arbitration exposure — which is why it must be paired with a batching mechanism rather than diluted.

"Batching." A defined process: an initial tranche of cases proceeds, selected by both sides, with the remainder stayed and tolled; results inform global resolution; and if no resolution follows, subsequent tranches proceed. Reference the administrator's mass arbitration protocol.

"Discovery." Adopt a rule set rather than inventing limits. Adequate discovery is a requirement for enforceability as to statutory claims, and a bespoke limitation invites a challenge.

"Remedies." All remedies available in court, including attorney's fees, punitive damages, and equitable relief. Do not shorten the limitations period.

"Award." Written, with findings of fact and conclusions of law sufficient for the limited review § 10 permits.

"Class and collective waiver," with non-severability. If the waiver falls, the employer generally prefers a court class action to a classwide arbitration, because the latter combines aggregate exposure with unreviewable decision-making.

"Delegation." Clear and unmistakable delegation of arbitrability, with an express acknowledgment that questions under the EFAA and § 1 are for the court.

"Governing act." The FAA, and if the FAA is held inapplicable, the arbitration act of the state where the employee works.

"Opt-out." Thirty days, by a simple method, with no adverse consequence, documented.

"Amendment." Prospective only, on notice, and not applicable to claims already accrued — which defeats the illusory-promise argument.

"Severability." Standard, with the class waiver expressly excluded from it.

Frequently asked questions

Can an employer require arbitration as a condition of employment? In FAA-covered relationships, generally yes. The NLRB may not treat a class waiver as unlawful after Epic Systems, but the manner of presentation still matters — threatening discharge for filing or participating in a Board charge remains an unfair labor practice, and an agreement that employees would reasonably read as barring agency filings is unlawful regardless of a carve-out buried elsewhere.

Does an employee who signed an agreement have to arbitrate a harassment claim? No, if the claim arose or accrued on or after March 3, 2022. The EFAA lets the employee elect to invalidate the agreement as to that case, and most courts read the election to cover the entire case rather than the single claim.

Can the employer still require confidentiality in a settlement? For an existing dispute, generally yes under federal law, though the SPEAK OUT Act bars predispute nondisclosure and nondisparagement clauses as to covered conduct, and a number of state statutes go considerably further — restricting confidentiality even in settlements of harassment and discrimination claims, or requiring specific carve-outs allowing the employee to discuss the underlying facts.

What happens if the employer refuses to pay the arbitration fees? In several states, that is a material breach permitting the employee to withdraw and proceed in court with mandatory fee-shifting, and California's statute imposes a hard 30-day deadline. Courts elsewhere have reached similar results as a matter of contract law. Refusing to pay is not a strategy.

Are arbitration awards appealable? Barely. Section 10 permits vacatur only for corruption, fraud, evident partiality, misconduct in refusing to hear evidence, or arbitrators exceeding their powers. Legal error, however plain, is not a ground. Parties who want appellate review must build a private appellate mechanism into the agreement, which some administrators offer.

Does an arbitration agreement stop an EEOC investigation? No. The agency is not bound by an agreement it did not sign and may pursue relief, including victim-specific relief, on behalf of an employee who is bound.

How quickly must we move to compel? Immediately. After Morgan v. Sundance, no prejudice is required for waiver, and courts have found waiver based on months of ordinary litigation conduct. File the motion before answering on the merits where the rules permit, and preserve the defense in any responsive pleading.

Does a delegation clause decide everything? No. Henry Schein requires courts to honor a clear delegation of arbitrability, but the EFAA expressly assigns its own applicability to the court notwithstanding a delegation, New Prime assigns the § 1 question to the court, and formation — whether an agreement exists at all — is always for the court.

Running an actual arbitration

Employers that win the motion to compel sometimes discover that they have not thought about what follows, and the differences from litigation are substantive rather than cosmetic.

Arbitrator selection is the most important decision in the case. Strike lists are the only real control either side has, and there is no appeal from a bad draw. Research candidates thoroughly — prior awards where available, published writing, professional background, and the reputation they carry with both plaintiff and defense counsel. A retired judge and a career neutral bring different instincts, and an arbitrator's prior practice orientation is a meaningful predictor.

The preliminary hearing sets the case. Discovery scope, motion practice, the hearing date, and whether dispositive motions are permitted at all are decided in the first conference. Come with a proposed schedule, a discovery plan, and a specific request for the ability to file a dispositive motion — many arbitrators will not entertain one absent an early agreement, and losing that option in the first thirty minutes shapes the entire case.

Dispositive motions are harder to win. Arbitrators are conscious that vacating an award for refusing to hear evidence is one of the few available grounds under § 10, which creates a structural incentive to hear everything. Plan for a hearing on the merits and treat a dispositive ruling as a bonus.

Evidence rules are relaxed. Hearsay usually comes in, subject to weight. That cuts against defendants more often than for them, because personnel files, complaint records, and prior statements arrive with fewer obstacles.

Cost. A multi-day employment arbitration with a well-known neutral routinely costs more in forum fees than the entire filing and motion cost of a court case, and the employer bears all of it. Budget accordingly, and factor it into settlement evaluation from the first month rather than the last.

The award. Insist on a reasoned award in the agreement, and then use the preliminary hearing to confirm the arbitrator will provide findings sufficient to support confirmation. Then confirm the award promptly under § 9 — an unconfirmed award is not a judgment and cannot be enforced by ordinary execution.

A final practical note. Keep the executed agreements where they can be found. A surprising number of motions to compel fail because the employer cannot produce a signed agreement for the particular plaintiff, or produces one with a different version of the terms than the one it is trying to enforce. Version every revision, retain the acknowledgment and its audit trail with the personnel file, and be able to state which version applied to which employee on which date.

Related articles

This article is provided for general informational purposes and does not constitute legal advice. Arbitration law has changed substantially and repeatedly, the scope of the EFAA is being actively litigated, and state law governs formation and unconscionability. Consult qualified employment counsel before adopting, amending, or enforcing an arbitration program.