Companies increasingly are recognizing that arbitration provides a fair and efficient alternative to litigation, and courts are clarifying the rules for drafting enforceable arbitration agreements. Arbitration provisions in consumer and employment contracts provide an effective, efficient, and fair alternative to a court system that is both costly and overburdened—and all too often fails to deliver justice for companies or their customers and employees.
Mayer Brown has been a pioneer in helping clients implement arbitration programs as an alternative to judicial resolution of disputes. We have deep experience:
- Working with clients to develop fair, effective, and enforceable arbitration clauses in a variety of business sectors, including telecommunications, financial services, and online businesses;
- Representing parties in the landmark cases establishing the enforceability of arbitration clauses—for example, we served as counsel for AT&T Mobility in the AT&T Mobility v. Concepcion litigation, including the path-breaking Supreme Court decision that Forbes characterized as a “monumental victory,” and wrote influential amicus briefs in American Express Co. v. Italian Colors Restaurant, Stolt-Nielsen SA v. Animalfeeds International and Rent-A-Center v. Jackson;
- Litigating and winning motions to compel arbitration in federal and state trial courts; and securing reversal of adverse rulings on appeal (and defending victories in trial courts). For example, we recently obtained summary reversal by the Supreme Court of a state court’s refusal to enforce an arbitration clause; and
- Participating actively in the policy debate regarding consumer and employment arbitration, including advocating before Congress, state legislatures and in administrative proceedings.
Although the Supreme Court’s decision in Concepcion eliminated many of the obstacles to the enforcement of arbitration clauses, attempts to limit the scope of Concepcion and otherwise disrupt the operation of arbitration programs continue.
Preemption of State-Law Unconscionability and Public-Policy Challenges to Arbitration
Despite the US Supreme Court’s decision in Concepcion, many plaintiffs continue to argue that particular agreements to arbitrate are unenforceable either as a matter of state contract law—relying chiefly on the doctrine of unconscionability—or state public policy. We have successfully argued in a number of cases that these state-law theories cannot be invoked as an end-run around preemption under the Federal Arbitration Act, and in particular that state-law policies favoring the use of the class action device (or analogues such as the private attorney general action) cannot trump the federal-law requirement that arbitration should take place on an individual (one-on-one) basis.
Responses to Attacks on Formation of Arbitration Agreements
In light of Concepcion and its progeny, most well-drafted arbitration agreements will be substantively enforceable. As a result, the latest tactic that the plaintiffs’ bar is using in efforts to avoid arbitration is to argue that the arbitration agreement (or the contract in which it is contained) suffers from contract formation problems. Among other things, plaintiffs have contended that they did not sufficiently manifest assent to the arbitration agreement; they lacked notice of the arbitration provision; the agreement was the product of an improper change in terms; or, that the arbitration agreement is not supported by adequate consideration. We have successfully defeated many of those arguments in court, either as a matter of state law or preemption under the Federal Arbitration Act. We have also counseled businesses about how to implement contracting processes—in both electronic and paper contexts—in a manner that ensures that enforceable agreements are formed.
Federal Regulatory Agency Activity
Following the Supreme Court’s decision in Concepcion, a number of federal agencies have been considering or taking steps that would limit the use of arbitration. For example, the National Labor Relations Board has declared that agreements to arbitrate on an individual basis will constitute an “unfair” labor practice under the National Labor Relations Act in a broad range of circumstances. And under the Dodd-Frank law, the new Consumer Financial Protection Bureau is empowered to regulate or prohibit the use of arbitration in the financial services context after conducting a mandatory study aimed at assessing the benefits of arbitration. We are assisting our clients in responding to these regulatory efforts by providing information and arguments that explain the benefits of arbitration for consumers, employees, and companies—especially as compared to our court system.
The Policy Rationale for Arbitration
Society as a whole—both businesses and their customers and employees—benefits from the use of arbitration. Not only does arbitration reduce the enormous transaction costs associated with litigation—a cost reduction that leads to lower prices and higher wages than would exist without arbitration—but arbitration also affords ordinary consumers and employees with better access to justice by allowing them to pursue claims in an inexpensive and streamlined process that the courts simply cannot offer.