The Clash: Mandatory Arbitration and Administrative Agency and Representative Access

Originally published by Beth Graham.

Maureen Weston, Professor of Law at Pepperdine University School of Law and Director of the Entertainment, Media & Sports Dispute Resolution Project, has published “The Clash: Mandatory Arbitration and Administrative Agency and Representative Access,” Southern California Law Review, Vol. 89, 2015; Pepperdine University Legal Studies Research Paper No. 2015/12. In her paper, Professor Weston discusses Federal Arbitration Act preemption and its impact on access to state and federal agency regulatory procedures.

Here is the abstract:

Mandatory pre-dispute arbitration clauses, which require individual final and binding arbitration and which exclude class or representative actions, whether in court or arbitration, are often embedded in employment contracts and nearly all aspects of commercial and consumer transactions. Administrative agencies at the state and federal levels also operate to regulate the sectors in which arbitration contracts are used. Legislation may likewise authorize or “deputize” private individuals to assert representative private attorney general or qui tam actions to enforce legislation on behalf of the state or agency. Strict enforcement of the arbitration clauses can impair an individual’s access to legislative and administrative schemes otherwise established to address specific areas of public policy.

The Federal Arbitration Act (FAA) requires courts to enforce agreements to arbitrate, subject to defenses that “exist at law or in equity for the revocation of any contract.” U.S. Supreme Court arbitration jurisprudence proclaims the FAA as a national policy favoring arbitration and the basis to enforce arbitration contracts “as written,” largely despite protests that such enforcement contravenes state law, precludes class actions, displaces access to administrative regulatory schemes, or effectively precludes parties from vindicating their federal or state statutory rights. The FAA preemption rule, particularly since declared by the U.S. Supreme Court in AT&T Mobility v. Concepcion to void state laws restricting consumer class action waivers, not only severely restricts states’ abilities to ensure judicial access through protective legislation, but it also can impair meaningful access to state and federal administrative and regulatory regimes.

In EEOC v. Waffle House, the U.S. Supreme Court recognized the province of a federal agency in holding that a mandatory arbitration clause in an employment contract, although binding on the employee, did not bar the Equal Employment Opportunity Commission (EEOC), a nonparty to the arbitration agreement, from acting on the employee’s behalf to pursue victim-specific remedies for discrimination, such as backpay, reinstatement, and damages. However, in Preston v. Ferrer, in which a party sought to have a dispute brought before the Labor Commissioner pursuant to the state’s Talent Agent Act, rather than in private arbitration, the Court announced that “[w]hen parties agree to arbitrate all questions arising under a contract, the FAA supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative.” Federal and state legislation may provide for rights to file complaints to administrative agencies or private actions on behalf of the public. Yet the extent to which parties to a pre-dispute arbitration contract may avail these procedures is in jeopardy.

This Article examines the impact of private arbitration on rights to access to agency regulatory procedures and to assert representative claims under state laws authorizing private attorney general or federal qui tam enforcement. Although the scope of FAA preemption is established doctrine, state and federal courts variously analyze the FAA’s preemptive impact on regulatory administrative procedures that provide substantive protections, or laws that “deputize” aggrieved individuals to assert representative claims on behalf of the government, or where a federal agency regards its statutory scheme exempt from FAA enforcement. This Article argues that the FAA, where applied to preempt and thus deny access to simplified and protective state or federal agency procedures, violates constitutional guarantees of federalism, with regard to state sovereignty rights to regulate traditional matters of public concern, and of federal agency separate powers. Established doctrine requiring exhaustion of administrative remedies, deference to agency rulings and expertise, as well as respect for the province for state authority under FAA’s “savings clause” also supports maintaining such access. This Article proposes alternative reform to retain the benefits of agency regulation and expertise while respecting contractual obligations and promoting informed decisionmaking.

This and other journal articles authored by Professor Weston may be downloaded for free from the Social Science Research Network.

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