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1.6.2 State Law

Although state-level reforms are sharply limited by the expansive scope of FAA preemption,98 they can still provide consumers with protection from some of the most serious harm resulting from forced arbitration.

The National Consumer Law Center’s Model State Consumer and Employee Justice Enforcement Act99 provides model statutory language to implement ten possible state interventions to mitigate some of the harms of forced arbitration. Titles I and II of the model act seek to protect the state’s interest in enforcing laws that protect employees and consumers and in ensuring efficient contracting and procurement.

Title I provides a “whistleblower” enforcement mechanism under which whistleblowers can bring public enforcement actions to enforce worker and consumer protections on behalf of the state. This is consistent with a Ninth Circuit decision that the FAA does not preempt a state statute prohibiting the arbitrability of qui tam claims brought under California’s Private Attorney General Act (PAGA)—which include claims brought by private attorneys general to enforce state protections against unfair labor practices.100 Title I is modeled in part on California’s PAGA but extends its protections to consumers as well as employees, and it includes, importantly, certain safeguards that should protect it against FAA preemption even in less sympathetic jurisdictions.

Title II prohibits state contractors from enforcing forced arbitration agreements against any of their consumers and employees. Title III requires that merchants and employers provide clear notice of all material terms in language that the consumer or employee can understand. For consumer contracts, Title III also requires that material terms be included in a single document.

Title IV sets out types of contractual terms related to dispute resolution found in form contracts between an individual and the drafter of the contract that are presumptively unconscionable, including, among others, terms requiring the individual to waive substantive rights or to resolve her dispute in a far-off forum. The Title creates a presumption that such terms are not severable from the arbitration agreement and makes the inclusion of such terms in a standard form contract an unfair and deceptive practice under state law.

Title V amounts to a catch-all provision that prohibits the enforcement of forced arbitration clauses in employment and consumer contracts that are not covered by the Federal Arbitration Act, including in contracts for insurance and in employment contracts for transportation workers. Title VI does not regulate private arbitration agreements but instead requires private companies that administer arbitrations to disclose certain data.

Title VII removes the jurisdiction of appellate courts to consider appeals from denials of motions to compel arbitration. It thereby ensures that employers and merchants are not able to force a plaintiff into costly and prolonged litigation regarding the applicability of an arbitration clause that a court has declined to enforce.

Title VIII would prevent arbitration administrators from allowing a respondent to stall an arbitration by refusing to pay. Title IX would ensure that an arbitration clause in a contract of adhesion cannot be held procedurally conscionable solely because it contains an opt-out provision.

Title X would clarify that in the context of an adhesion contract, when deciding whether to sever unconscionable terms or refuse to enforce a contract containing unconscionable terms in its entirety, the court should consider, among other things, whether severing the terms would create an incentive for drafters to include such terms in contracts and whether the unconscionable terms would create an in terrorem effect on the non-drafting party.

Footnotes