Legal Definitions - United States Arbitration Act

The United States Arbitration Act (USAA) is a federal law that is more commonly known as the Federal Arbitration Act (FAA). Its main purpose is to ensure that agreements to resolve disputes through arbitration are legally binding and enforceable by courts. Essentially, if parties agree in a contract to settle future disagreements through arbitration—an alternative dispute resolution process where a neutral third party, an arbitrator, makes a decision outside of court—then courts must uphold that agreement. This law reflects a strong federal policy favoring arbitration as an efficient and effective alternative to traditional court litigation.

Here are some examples of how the United States Arbitration Act applies:

• Consumer Services Agreement: Imagine a person signs up for a new internet service. Within the lengthy terms and conditions, which they agree to electronically, there's a clause stating that any disputes related to the service must be resolved through binding arbitration. If the customer later experiences persistent service outages and wants to sue the internet provider for breach of contract, the provider can invoke the United States Arbitration Act. This Act would compel the customer to pursue their claim through arbitration as agreed, rather than allowing them to proceed directly to court, because the law mandates the enforcement of such arbitration agreements.

• Employment Contract: A software engineer accepts a job offer from a tech company. Their employment contract includes a provision requiring that any future disputes between the employee and the company, such as claims of unfair dismissal or workplace discrimination, must be settled through arbitration. If the engineer is later terminated and believes it was unlawful, they cannot immediately file a lawsuit in court. The employer can use the United States Arbitration Act to force the engineer to go through the agreed-upon arbitration process, as the Act ensures that these types of arbitration clauses in employment agreements are legally enforceable.

• Business-to-Business Supply Contract: Two companies, one that manufactures car parts and another that assembles cars, enter into a long-term supply agreement. Their contract specifies that any disagreements regarding product quality, delivery schedules, or payment terms will be resolved by a neutral arbitrator. When a significant dispute arises over a batch of defective parts causing production delays, the car assembly company attempts to sue the parts manufacturer in federal court. The parts manufacturer can cite the United States Arbitration Act to argue that the court must halt the lawsuit and compel both parties to proceed with arbitration as they originally agreed, thereby upholding the contractual arbitration provision.