Legal Definitions - Federal Arbitration Act

The Federal Arbitration Act (FAA) is a United States federal law designed to ensure that agreements to resolve disputes through arbitration, rather than in court, are generally considered valid and enforceable. Its primary purpose is to uphold the integrity of these arbitration agreements, meaning that if parties have agreed to arbitrate, courts will typically respect that agreement and compel the dispute to go through arbitration. This also means that once an arbitration process concludes and an award is issued, courts usually do not have the authority to overturn that decision, provided the arbitration agreement itself was valid.

However, there are important exceptions to the FAA's broad reach:

• It generally does not apply to employment contracts for certain transportation workers, such as seamen, railroad employees, or other workers directly involved in moving goods or people across state lines or internationally.
• Additionally, as of 2022, claims involving sexual harassment or sexual assault cannot be forced into mandatory arbitration under the FAA, even if there was a prior agreement to arbitrate all disputes.

Here are some examples illustrating the application of the Federal Arbitration Act:

• Example 1: Consumer Dispute with a Streaming Service

  Imagine Sarah signs up for a new online streaming service. In the terms and conditions she agreed to, there's a clause stating that any disputes between her and the company must be resolved through arbitration. Later, Sarah has a billing issue she can't resolve directly with customer service. If she tries to sue the streaming service in court, the company can invoke the Federal Arbitration Act. The FAA would likely compel Sarah to take her dispute to arbitration, as she agreed to it in the terms, preventing her from pursuing the matter in a traditional courtroom setting.

• Example 2: Business Contract Disagreement

  A small marketing agency, "Creative Campaigns," enters into a contract with a software development firm, "Tech Solutions," to build a custom application. Their contract includes a provision that any disagreements arising from the project will be settled through binding arbitration. When a dispute arises over project delays and cost overruns, Creative Campaigns considers filing a lawsuit. However, because of the Federal Arbitration Act, Tech Solutions can insist that the dispute go to arbitration as per their agreement, and a court would typically uphold this request, ensuring the parties follow their agreed-upon method of dispute resolution.

• Example 3: Sexual Harassment Claim in the Workplace

  Consider Maria, who works for a large corporation. When she was hired, she signed an employment agreement that included a mandatory arbitration clause for all workplace disputes. If Maria later experiences sexual harassment from a colleague and wishes to pursue a claim against her employer, the Federal Arbitration Act would not force her into arbitration for this specific type of claim. Even though she signed an agreement to arbitrate, the 2022 amendment to the FAA specifically exempts sexual harassment and sexual assault claims, allowing Maria to pursue her case in court if she chooses, despite the arbitration clause in her contract.