The Federal Arbitration Act at 100: An opportunity for reform?

This year marks the 100th anniversary of the Federal Arbitration Act (FAA). When the statute was enacted in 1925, Calvin Coolidge was president, the Ford Model T was America's top-selling car and the average lawyer drafted contracts with a fountain pen. A century later, that same statute still forms the backbone of American arbitration practice: It governs everything from complex, cross-border disputes to consumer and employment cases.

From one perspective, the FAA's longevity is a testament to its enormous staying power; from another, it is an invitation to consider whether the U.S. is out of step with international developments.

The third-oldest arbitration act in the world

Most countries have revisited or replaced their arbitration laws multiple times in the past 100 years. Among the 192 or so national arbitration acts that I have looked at, the FAA is currently the third oldest -- surpassed only by Chile's 1865 Code of Commerce (which governs domestic arbitration--Chile's international arbitration act is of a much newer vintage) and Eswatini's 1904 Arbitration Act.

Several countries, such as Albania, Greece, Luxembourg, Japan, Nigeria, Trinidad and Tobago, and the U.K., have amended their arbitration laws in the last two years. These amendments address issues such as emergency arbitrators, interim measures, joinder and consolidation and the realities of digital commerce -- matters that were not on anybody's radar when the FAA was drafted. Looking just at developed economies, almost all arbitration acts currently in force were enacted in the mid-1980s or later. And other than the U.S., each of the G7 countries has replaced or substantially revised its arbitration statute in the past 40 years.

By contrast, the FAA has never been comprehensively rewritten. Apart from targeted amendments -- such as those implementing the United Nations (UN) Convention on the Enforcement of Foreign Arbitral Awards (the New York Convention) -- it remains substantially the same law Congress passed in 1925.

Should the FAA be updated for the 21st Century? 

The statute's centenary certainly seems like an auspicious moment to pose this question. Although I do not take a position either way, I suggest that policymakers should at least consider how arbitration law outside the U.S. has adapted to changing times. Doing so will reveal at least two ways in which the U.S. has become an outlier over the years.

First, since the 1980s, the U.S. Supreme Court has interpreted the FAA to apply to nearly all consumer and employment disputes, subject only to narrow exceptions and case-by-case findings of unconscionability. But the picture is different in most other countries around the world. For instance, employment arbitration is outright prohibited in jurisdictions such as Brazil, Greece, Italy and Germany. The same is true of consumer arbitration in Bulgaria, Canada, the Czech Republic, the Netherlands and others. In France, Norway, Poland and Vietnam, arbitration agreements involving consumers or employees are enforceable, but only if entered after a dispute has arisen, thus ensuring a measure of knowing consent to arbitration. In other countries, such as New Zealand, arbitration clauses must still appear in separate, specially signed documents or disclose explicitly that the consumer is waiving court rights. In the U.S., by contrast, such limitations at the state level are routinely struck down as preempted by the FAA.

Second, the FAA predates the 1985 passage of the UN Commission on International Trade Law's (UNCITRAL) Model Law on International Commercial Arbitration (the Model Law). The Model Law sought to harmonize national arbitration statutes and reflect international best practices. For example, it codifies principles such as kompetenz-kompetenz and separability, authorizes not just courts but also arbitrators to grant interim measures, recognizes electronic communications as "writings" and aligns the grounds for setting aside awards with those for refusing enforcement under the New York Convention.

Because the FAA is a bare-bones statute that is silent on many of these issues, case law and institutional rules have been forced to fill the gaps. This has sometimes created a complex patchwork of doctrines that even seasoned practitioners struggle to navigate. But there is also a limit to what can be accomplished through such gap-fillers. For example, although the Model Law provides for immediate court review of any denial of a challenge to an arbitrator, the FAA's silence on this topic means that such review can take place only at the very end of the case, on a motion to vacate. A handful of U.S. states, including California, Texas and Florida, have passed international arbitration acts based on the Model Law. But these enactments are of limited value because they apply only to international arbitrations, over which federal courts will almost always have subject matter jurisdiction.

Looking to the future

Around the globe, legislators and arbitral institutions are constantly fine-tuning their systems to make arbitration more transparent, accessible and globally competitive. For example, in January 2022, the U.K.'s Law Commission initiated a review of the Arbitration Act 1996, which included several rounds of reports and public consultations and resulted in amendments to the act regarding arbitrator disclosures, arbitrator immunity, summary disposition procedures and emergency arbitrators, among others. In April 2023, the German Ministry of Justice published a paper outlining 12 proposals for the reform of German arbitration law, including with respect to arbitration agreements in electronic form, multiparty arbitrations, publication of awards and virtual hearings. 

Although reasonable minds can disagree about the merits of these proposed reforms, what is undeniable is that countries around the world have been engaged in periodic, recent and sometimes ambitious reforms of their legal frameworks on arbitration. And rather than taking place in a vacuum, these reforms often look to developments in other countries and to international best practices. 

The FAA's 100th anniversary is not just a milestone -- it's an opportunity to reflect and take stock. Even if the FAA is best left untouched for the next century, policymakers and legislators should at least consider what can be learned from arbitration reform developments around the world so the U.S. does not risk being left behind.

Disclaimer: The content is intended for general informational purposes only and should not be construed as legal advice. If you require legal or professional advice, please contact an attorney.