What Is a Mutual Agreement to Arbitrate Claims?

A mutual agreement to arbitrate claims binds parties to resolve disputes via a neutral arbitrator instead of courts, keeping proceedings private. These contracts waive jury trials for covered claims like employment discrimination or contract breaches, often administered by bodies like the American Arbitration Association (AAA). Rooted in the Federal Arbitration Act (FAA) of 1925, they enforce uniformly across states unless unconscionable.

Parties mutually consent, specifying arbitrator selection, rules, and binding outcomes. Read the full article for a better understanding.

Legal Framework in the USA (2026 Updates)

The FAA (9 U.S.C. §§ 1-16) requires courts to enforce valid arbitration agreements. This law overrides state laws that are against arbitration. Supreme Court cases, like Epic Systems Corp. v. Lewis (2018), support class waivers. Italian Colors (2013) restricts challenges to fees.

As of February 2026, there have been no major changes to FAA mutuality. However, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (2022) does exempt those claims. The FTC’s non-compete ban (2024, partially blocked) indirectly encourages arbitration for employment disputes. State laws vary: California limits arbitration with AB 51 (injunction pending), while Texas supports it.

FAA Key Provisions

• Section 2: Validates agreements “save upon such grounds as exist at law or in equity.”​
• Section 4: Courts compel arbitration on motion.​
• Section 10: Vacates awards for arbitrator misconduct.​

What Claims Are Typically Covered?

Arbitration agreements in employment settings typically cover a broad range of claims, including:

• Discrimination claims under Title VII, the ADA, and the ADEA
• Wage and hour disputes under the FLSA
• Wrongful termination claims
• Breach of contract
• Retaliation claims

Claims commonly excluded from arbitration include workers’ compensation claims, unemployment insurance benefits, and claims under employee benefit plans that include their own dispute resolution procedures.

What Is Typically Excluded 

Not everything can be forced into arbitration. Courts have found certain statutory claims require public adjudication, and specific federal legislation has carved out entire categories of claims.

The Federal Law — EFASASHA (2022)

The most significant development in arbitration law in the past century came on March 3, 2022, when President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFASASHA).  Public Law 117-90,  into law. 

The law passed the House 335-97 and the Senate by a voice vote, with bipartisan support. It amended the FAA directly, the first major amendment in the Act’s 100-year history.

What EFASASHA Actually Does

Under EFASASHA, no predispute arbitration agreement or class/collective action waiver is valid or enforceable if it applies to a case filed under federal, tribal, or state law relating to a sexual assault or sexual harassment dispute.

Key features of the law:

Employee’s choice

The employee, not the employer, decides whether to go to court or to arbitration. They cannot be compelled.

Retroactive reach 

It applies to agreements entered before March 3, 2022, as long as the claim arose after that date.

Court decides applicability

Unlike most arbitration questions, whether EFASASHA applies is determined by a judge, not an arbitrator, even if the agreement delegates gateway questions to arbitrators.

Broader case protection 

Federal courts have interpreted EFASASHA to cover the entire case when sexual harassment or assault claims are present alongside other claims (e.g., retaliation, race discrimination), not just the harassment claim itself.

EFASASHA and LGBTQ+ Workers

The EEOC has taken the position that EFASASHA covers harassment claims based on gender identity and sexual orientation, meaning anti-LGBTQ+ harassment claims may also allow workers to bypass forced arbitration.

How the Arbitration Process Works

Understanding what you’re agreeing to is essential. Here is how arbitration typically unfolds:

Step-by-Step Overview

1. Filing a Demand 

The party initiating arbitration submits a written demand within the time limits specified in the agreement (missing this deadline typically waives the right to arbitrate or litigate).

2. Selecting an Arbitrator

The arbitrator is chosen by mutual agreement between the parties. If they can’t agree, the chosen arbitration service (typically the American Arbitration Association (AAA) or JAMS) applies its own selection rules.

3. Pre-Hearing Process

There is limited discovery. Unlike court litigation, depositions and document production are restricted. However, following the AAA’s 2024–2025 rule updates, arbitrators are now authorized to issue subpoenas for witnesses and documents and to order depositions.

4. The Hearing

The arbitration hearing resembles a trial but without strict rules of evidence and without a jury. Both sides present evidence and arguments.

5. The Award

The arbitrator issues a final, binding decision. In most cases, this award cannot be appealed except on very narrow grounds (e.g., arbitrator misconduct or fraud).

AAA 2024–2025 Rule Updates You Should Know

The American Arbitration Association updated its Consumer and Employment Arbitration Rules in 2024–2025 with notable changes:

• The stay period when a party seeks judicial intervention was extended to 90 days (up from 30–60 days), giving courts more time to rule before arbitration begins.
• Arbitrators can now consolidate multiple cases filed by the same party under the same contract.
• Arbitrators may impose sanctions against a party for misconduct.
• Parties now have clearer rights to request modification or clarification of an award.

Pros and Cons of Arbitration Agreements

For Employees and Consumers

Potential benefits:

• Faster resolution than court litigation, which can drag on for years
• Lower out-of-pocket costs in some cases (especially if the employer pays arbitrator fees)
• Private proceedings that don’t create a public record

Significant drawbacks:

• No jury trial, a constitutional right waived when you sign
• Limited discovery means less evidence available to build your case
• Class action waivers prevent joining with similarly situated colleagues
• Arbitrators decide more cases in favor of employers in repeat-player contexts, according to multiple empirical studies
• Binding decisions with virtually no appellate review

For Employers and Businesses

Arbitration agreements offer predictability, confidentiality, lower litigation costs, and protection against high-exposure class action lawsuits. This is why, according to the National Employment Law Project, approximately 60 million workers, more than half of the non-unionized private-sector workforce, are currently subject to mandatory arbitration agreements.

When Can an Arbitration Agreement Be Challenged?

Employees and consumers can challenge the enforceability of an arbitration agreement on several grounds:

Unconscionability

If the agreement is so one-sided that no reasonable person would have agreed to it, or was signed under conditions of extreme pressure, courts may refuse to enforce it. States like California have been particularly active in striking down one-sided arbitration clauses.

Procedural Defects

• The agreement was not properly disclosed before signing
• The employee was not given a reasonable time to review it
• The agreement lacks consideration (i.e., there’s nothing in it for the employee)

State Law Exceptions

While the FAA preempts most state anti-arbitration rules, states can apply general contract law defenses. California, for instance, has ruled that a waiver of PAGA (Private Attorneys General Act) claims is unwaivable, even in otherwise enforceable arbitration agreements.

Specific Federal Carve-Outs

As covered above, sexual assault and sexual harassment claims are now federal carve-outs under EFASASHA. Additional legislation may follow. Congress has introduced bills targeting arbitration in nursing homes, consumer financial products, and other contexts.

What to Look for Before You Sign

If you are presented with an arbitration agreement, review these key elements:

Scope of claims covered — Does it cover all disputes, or only employment-related ones? Does it include personal injury claims?

Cost allocation — Who pays the arbitrator’s fees? In consumer and employment cases, the AAA requires companies to pay most costs. If an agreement requires you to split costs equally, this can be a red flag.

Discovery rights — What evidence exchange is permitted? Severely limited discovery can harm your ability to prove your case.

Class action waiver — Are you waiving the right to join a class or collective action? This is common and generally enforceable under current federal law.

Arbitrator selection — Is the process for selecting an arbitrator neutral and transparent?

Time limits — What is the deadline to file a claim? Some agreements shorten the statute of limitations significantly.

Venue and location — Where must the arbitration take place? A distant location can make arbitration effectively inaccessible.

Arbitration Agreements in Healthcare Settings

Arbitration agreements appear with increasing frequency in healthcare contexts — including hospital admission paperwork, medical practice intake forms, and medical billing service contracts. When patients sign these agreements (sometimes without realizing it), they waive the right to sue their healthcare provider in court for most claims.

Healthcare providers and medical billing companies that use arbitration agreements should ensure these agreements are:

• Clearly labeled and not buried in administrative paperwork
• Voluntarily signed and not a condition of receiving emergency care
• Compliant with state-specific healthcare arbitration regulations (which vary significantly by state)
• Exempt from EFASASHA protections where applicable

If you operate a healthcare or medical billing practice in Wisconsin or anywhere in the United States, understanding the arbitration landscape is critical both to protect your organization and to remain compliant with patient rights laws.

Conclusion

A mutual agreement to arbitrate claims is not just administrative paperwork; it is a substantive legal document that reshapes how you can resolve disputes with an employer, insurer, healthcare provider, or service company. Under the Federal Arbitration Act, these agreements are presumptively enforceable. But federal law now carves out protections for victims of sexual assault and sexual harassment under EFASASHA (2022), and courts continue to evolve how these agreements are interpreted and applied.

If you are a healthcare provider in Wisconsin, dispute resolution processes require expert guidance. Wisconsin Medical Billing specializes in helping healthcare providers. From claim submission to denial management and contract review, our team ensures your practice stays protected and profitable. Contact us today to learn how we can simplify your billing operations and keep your practice compliant.

Frequently Asked Questions

Can I Refuse to Sign an Arbitration Agreement?

Technically, yes, but practically speaking, many employers condition employment on signing. You may be able to negotiate specific terms, but few employers allow a complete opt-out. Some states are working to limit this.

Are Arbitration Decisions Public?

Generally no. Arbitration is a private process. This is one reason companies prefer it — outcomes do not become part of the public record, unlike court judgments.

Can I Still File a Complaint with the EEOC?

Yes. Arbitration agreements cannot prevent you from filing a charge with the Equal Employment Opportunity Commission (EEOC). The EEOC is a federal agency that investigates employment discrimination claims and is not bound by private arbitration clauses.

What Happens if the Agreement Is Found Unenforceable?

If a court strikes down an arbitration agreement (in whole or in part), the case proceeds in the appropriate court, federal, state, or tribal, as if no arbitration agreement existed.