The Carve-Out Is the Only Reform That Has Passed

Legislative history in this area is short and instructive. Comprehensive bills restricting pre-dispute arbitration in consumer and employment contracts have been introduced repeatedly across successive Congresses. None has advanced.

One reform did pass, and its shape explains why.

What the carve-out model demonstrated

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act allows a person alleging sexual assault or sexual harassment to elect not to be bound by a pre-dispute arbitration agreement or class waiver. It passed with bipartisan support and took effect in 2022.

Its doctrinal significance exceeds its subject-matter scope. It established that Congress will amend the Federal Arbitration Act — that the statute is not, politically, untouchable — provided the amendment is bounded to a category of claim around which a coalition can form.

That is a narrow but genuine precedent, and every serious reform proposal since has been drawn in its image: identify a discrete category, build a coalition around it, and legislate an election right rather than a prohibition.

Why the broad version does not move

The obstacle is not primarily ideological. It is that a general restriction on consumer arbitration requires legislators to accept a specific trade-off, on the record: more litigation, in exchange for claims that are currently not adjudicated at all.

The scholarly case for making that trade is strong and well documented. Forced arbitration foreclosed civil rights claims, wage theft claims, harassment claims, and consumer fraud claims — with foreclosure falling disproportionately on minorities, women, wage workers, and low-income individuals. Those are not claims that were heard and lost. They were claims that were never brought.

But the argument requires accepting a diffuse and contested benefit against a concrete and well-organised cost, which is generally the losing side of a legislative bargain.

The carve-out model works because it removes the trade-off. A category-specific election right does not require anyone to defend litigation volume in the abstract; it requires them to defend arbitration for one class of claim, which is a much harder position to hold.

The state route, and the preemption wall

State legislatures have more appetite and less room.

FAA preemption displaces state law that singles out arbitration or obstructs enforcement of arbitration agreements. That forecloses the direct approach. What remains is regulation that operates on generally applicable contract principles, or that regulates conduct within the arbitral process rather than the agreement to arbitrate.

California's fee-payment scheme is the clearest example of the second technique. In consumer and employment arbitration, a drafting party that fails to pay the fees required to initiate or continue arbitration within thirty days is in material breach, waives the right to compel arbitration, and faces mandatory monetary sanctions, fee awards, and evidentiary or discovery sanctions.

The design is careful. It does not prohibit arbitration, restrict who may agree to it, or invalidate any clause. It requires a party that chose arbitration to fund it, and attaches consequences to not doing so. It has proved consequential in practice — most visibly against non-payment strategies that succeed in other jurisdictions.

The argument that would change the map

The most interesting reform argument currently available is not legislative at all. It is that heavily engineered modern clauses may fall outside the FAA's coverage.

The reasoning: the FAA was enacted to enforce agreements to submit disputes to arbitration — a streamlined, arbitrator-decided alternative to litigation. A regime that layers mandatory notice, informal resolution windows, evidentiary preconditions, tranche-based sequencing, and bespoke bellwether protocols on top of that core may no longer be that thing. If it is not, state legislatures could regulate the apparatus without confronting preemption, because there would be nothing protected to preempt with.

The argument has not been adopted by any court and faces real difficulties — chiefly, drawing a principled line between permissible procedural specification, which the FAA plainly protects, and disqualifying complexity. But it reframes the question in a way that no amount of legislative drafting could, and it is the argument to watch.

Where this leaves practitioners

Three practical implications.

Do not plan around federal reform. Broad restriction is not close, and has not been for a decade.

Do plan around carve-outs. The 2022 statute is the model. Any category that attracts sustained public attention is a candidate, and a carve-out changes exposure overnight for the companies it reaches.

Track state fee legislation closely. California's approach is replicable, and it directly determines whether the non-payment strategy is available. A national clause architecture that assumes uniform treatment of fee obligations is already wrong.