US Arbitration Law

The Federal Arbitration Act

The Federal Arbitration Act (FAA), enacted in 1925 and codified at 9 U.S.C. §§ 1–16, is the primary legislation governing arbitration in the United States. Chapter 1 of the FAA applies to domestic arbitration and establishes a substantive federal policy favouring arbitration. In Southland Corp v Keating (465 U.S. 1, 1984), the Supreme Court held that the FAA preempts state anti-arbitration laws under the Supremacy Clause, establishing that the FAA applies in both federal and state courts and that state laws that discriminate against arbitration are invalid. This preemption doctrine has been a cornerstone of American arbitration law, ensuring that arbitration agreements are treated no less favourably than other contracts under state law — the “saving clause” of FAA § 2.

Scope and Application

The FAA applies to any written arbitration provision in a contract “involving commerce” — a phrase the Supreme Court has interpreted broadly to reach the full extent of Congress’s Commerce Clause power. The statute defines a written arbitration agreement as “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” This equal-treatment principle allows state contract law defences — fraud, duress, unconscionability — to invalidate arbitration agreements so long as they are applied even-handedly to all contracts. The doctrine of competence-competence is recognised in the United States through delegation clauses: parties may agree to have arbitrators determine their own jurisdiction, including questions of arbitrability, provided the delegation clause is itself valid. The Supreme Court in AT&T Technologies v Communications Workers (475 U.S. 643, 1986) held that gateway issues of arbitrability — whether the parties agreed to arbitrate a particular dispute — are presumptively for the court unless there is clear and unmistakable evidence that the parties intended otherwise.

Compelling Arbitration and Vacatur

The FAA provides for a motion to compel arbitration and a stay of litigation under §§ 3 and 4. A party to a valid arbitration agreement may petition a federal court for an order compelling arbitration and staying any pending litigation until arbitration is concluded. The court’s role is limited to determining whether a valid arbitration agreement exists and whether the dispute falls within its scope. Section 10 of the FAA sets forth the exclusive grounds for vacatur of an arbitral award: corruption, fraud, or undue means; evident partiality or corruption in the arbitrators; misconduct by the arbitrators prejudicing the rights of a party; or the arbitrators exceeding their powers. The federal courts have also recognised “manifest disregard of the law” as a non-statutory ground for vacatur, though its scope has been narrowed — the Supreme Court in Hall Street Associates v Mattel (552 U.S. 576, 2008) held that the FAA’s statutory grounds are exclusive and that parties cannot expand them by agreement, while leaving open the question of whether manifest disregard survives as a judicial gloss on the statutory grounds.

International Arbitration

Chapter 2 of the FAA, added in 1970, implements the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The United States ratified the Convention subject to the reciprocity and commercial reservations, meaning that the Convention applies only to awards made in the territory of another Convention state and only to disputes arising out of commercial legal relationships. The grounds for refusal of recognition and enforcement under Article V of the Convention are exhaustive and closely tracked by the federal courts. Major arbitration institutions in the United States include the American Arbitration Association (AAA), JAMS, and the International Centre for Dispute Resolution (ICDR), the international division of the AAA. Recent developments have focused on the use of arbitration in consumer and employment contracts, with growing legislative initiatives at the federal and state levels — including the proposed Forced Arbitration Injustice Repeal (FAIR) Act — to restrict mandatory predispute arbitration agreements in the employment, consumer, and civil rights contexts.