Emerging Trends in Employment Arbitration in 2026: What Employers Need to Know

Quick Hits

• The legal landscape of employment arbitration continues to evolve as plaintiffs’ attorneys mount new challenges, particularly in light of laws like the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA).
• Employers can avoid pitfalls by staying informed on the latest issues and carefully crafting and regularly evaluating their arbitration agreements to maintain effectiveness and enforceability.

The Federal Arbitration Act (FAA) promotes the use of arbitration agreements, preempts state anti-arbitration laws, and requires federal and state courts to place arbitration agreements on the same footing as other contracts. Several issues and trends—from the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) to plaintiffs’ attorneys’ contesting the enforceability of arbitration agreements—affect best practices for enforceable employment arbitration agreements.

Plaintiffs’ counsel continue to search for new ways to challenge the enforceability of arbitration agreements and class action waivers. In some states, like California, plaintiffs’ counsel have focused in particular on arguing that mandatory employment arbitration agreements are allegedly unconscionable for various reasons. Sometimes courts have agreed and refused to enforce these agreements.

• Enforceability of Arbitration Agreements

Employers may want to ensure that their agreements are clear, conscionable, and easily understood. Typical due process protections in arbitration agreements include not requiring employees to pay fees and costs unique to arbitration (such as arbitrators’ fees), allowing for all substantive remedies, providing parties with sufficient access to discovery, and requiring written arbitration awards.

• Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act

The EFAA is a federal law signed on March 4, 2022, that amended the FAA to limit employers’ ability to enforce mandatory predispute arbitration agreements for disputes involving sexual harassment or sexual assault. While the EFAA applies to specific claims, there is a question whether employers can compel arbitration for an employee’s other non-sexual harassment or non-sexual assault claims brought in the same dispute.

Some courts interpreted the EFAA as requiring that sexual assault or sexual harassment claims be split and litigated while the remaining claims are sent to arbitration. Other courts have come to the opposite conclusion, reasoning that the EFAA applies to a whole “case,” meaning all an employee’s claims brought in the same suit. This interpretation allows employees to prevent the enforcement of otherwise valid arbitration agreements.

Employers may want to review their agreements to determine whether they can be modified to mitigate the risk that entire “cases” will be barred from arbitration if they include a sexual harassment or sexual assault dispute.

• Covered Claims

Employment arbitration agreements typically apply to all claims related to employment with the employer, including those arising from the application process and termination of employment. Some notable exceptions include workers’ compensation benefits, unemployment benefits, benefits under a collective bargaining agreement that provides its own method for dispute resolution, and claims filed with a federal, state, or local administrative agency such as the U.S. Equal Employment Opportunity Commission (EEOC) or the National Labor Relations Board (NLRB).

However, federal legislation is regularly proposed that would exempt more types of disputes from the FAA or expand existing carveouts along the lines of 2022’s EFAA. For example, the Forced Arbitration Injustice Repeal (FAIR) Act, Senate Bill (S) 2799, proposed in September 2025, would, if enacted, “prohibit predispute arbitration agreements that force arbitration of future employment, consumer, antitrust, or civil rights disputes” and predispute class action waivers. At this time, the likelihood of such federal legislation passing appears low, but employers should continue to monitor legislative developments.

• Interstate Transportation Worker Exemption

While the FAA provides that most employment arbitration agreements are valid and enforceable, the FAA excludes “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the FAA. This is known as the “transportation worker” exemption.

This exemption means that arbitration agreements with covered transportation workers are not covered by the FAA. Arbitration agreements with transportation workers are thus subject to state law, which, depending on the jurisdiction, may limit or bar employment arbitration agreements or class actions waivers. In recent years, employees have increasingly sought to avoid  the FAA and challenge the enforceability of their arbitration agreements and class action waivers under state law by arguing they are transportation workers exempted from the FAA.

The Supreme Court of the United States continues to clarify the meaning of the FAA’s “transportation worker” exemption. In recent cases, the Court has rejected an industrywide approach and held that the inquiry focuses on whether, based on the worker’s job duties, the worker is “actively engaged in transportation of those goods across borders via the channels of foreign or interstate commerce.” The Court is currently considering a case asking whether local delivery drivers who do not deliver goods across state lines are covered by the FAA’s transportation-worker exemption.

Next Steps

Employment arbitration, which provides a fair and efficient manner to resolve employment disputes, continues to face challenges from plaintiffs’ attorneys and potential new regulation. Employers can avoid pitfalls by staying informed on the latest issues and carefully crafting and regularly evaluating and updating their arbitration agreements to maintain their effectiveness and enforceability.

An Arbitration Agreement Package is available through Ogletree Deakins. Additional template packages are also available.

Ogletree Deakins’ Arbitration and Alternative Dispute Resolution Practice Group will continue to monitor developments and will provide updates on the Arbitration and Alternative Dispute Resolution blog as additional information becomes available.

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