Does Arbitration Require Consent of Both Parties? (w/Examples) + FAQs

Yes, arbitration requires the consent of both parties. The Federal Arbitration Act (FAA) establishes that arbitration is “a matter of consent, not coercion.” However, consent does not always mean active, knowing agreement at the time a dispute arises. Instead, consent often happens when you sign a contract containing an arbitration clause—sometimes without realizing it.

Section 2 of the FAA states that written arbitration agreements are “valid, irrevocable, and enforceable” unless grounds exist to revoke any contract. This creates the problem: once you sign an agreement with an arbitration clause, courts presume your consent. The consequence? You may lose your right to sue in court, face a jury trial, or join a class action lawsuit—all because of a clause buried in fine print you never noticed.

The statistics paint a stark picture. According to the Economic Policy Institute, over 60 million American workers are bound by forced arbitration clauses. Research from the NELA Institute shows that at least 52 of America’s Fortune 100 companies use forced arbitration. These numbers reveal how widespread—and often hidden—consent to arbitration has become.

In this article, you will learn:

📋 How consent is formed for arbitration agreements under federal and state law—and why you may already be bound without knowing it

⚖️ The specific legal grounds to challenge an arbitration agreement, including fraud, duress, and unconscionability

🔍 Real-world scenarios showing when consent is valid versus when it fails—with action/consequence tables

🛡️ How to opt out of arbitration clauses when possible, with step-by-step guidance

❌ Common mistakes people make with arbitration agreements and how to avoid them

What Federal Law Says About Arbitration Consent

The Federal Arbitration Act governs most arbitration agreements in the United States. Enacted in 1925, the FAA applies to contracts involving interstate commerce—which includes most employment agreements, consumer contracts, and business deals today.

Under the FAA, an arbitration agreement must meet basic contract requirements to be enforceable. This means there must be mutual assent (both parties agree), consideration (something of value exchanged), and capacity (both parties are legally able to enter contracts). The agreement must also be in writing.

The U.S. Supreme Court has consistently upheld arbitration agreements, even in contracts of adhesion—those “take it or leave it” agreements you sign when starting a job or opening a bank account. In AT&T Mobility v. Concepcion (2011), the Court ruled 5-4 that the FAA preempts state laws that prohibit class action waivers in arbitration agreements. This landmark decision strengthened employers’ and businesses’ ability to enforce arbitration clauses.

More recently, in Epic Systems Corp. v. Lewis (2018), the Supreme Court upheld employment contracts requiring individual arbitration and prohibiting class actions. The Court reasoned that the FAA’s mandate to enforce arbitration agreements “as written” overrides claims that such agreements violate workers’ rights to collective action under the National Labor Relations Act.

How Consent Is Created: The Different Types of Arbitration Agreements

Understanding how consent is formed helps you know when you might be bound by arbitration. Consent can happen in several ways, each with different legal implications.

Pre-Dispute vs. Post-Dispute Agreements

Pre-dispute arbitration agreements are signed before any conflict arises. These are the most common type and appear in employment contracts, credit card agreements, cell phone contracts, and terms of service. When you sign these agreements, you consent to arbitrate future disputes—even ones you cannot foresee.

Post-dispute agreements are signed after a conflict occurs. In this scenario, both parties actively choose arbitration over litigation. Post-dispute agreements typically involve more genuine, informed consent because both parties understand the specific dispute at hand.

Mandatory vs. Voluntary Arbitration

Mandatory arbitration means you must use arbitration if a dispute arises. The contract leaves no choice. According to research, if arbitration is mandatory by contract, parties lack flexibility to choose their dispute resolution method later.

Voluntary arbitration offers arbitration as an option rather than a requirement. Parties can decide whether arbitration makes sense after evaluating their specific situation. True mutual arbitration agreements allow both sides equal say in the process and terms.

Types of Consent: Clickwrap, Browsewrap, and Written Signatures

The method of consent affects enforceability. Courts analyze how you agreed to the arbitration clause when deciding if consent was valid.

Clickwrap Agreements

Clickwrap agreements require you to click “I agree” or check a box before proceeding. Courts generally enforce clickwrap agreements because they present explicit terms and require affirmative action. In Feldman v. Google, the court held that clickwrap agreements are enforceable when users receive “reasonable notice of the terms, and manifested assent.”

Browsewrap Agreements

Browsewrap agreements display terms through a hyperlink, and your continued use of the website supposedly indicates agreement. Courts are more skeptical of browsewrap agreements because passive assent—simply using a website—may not demonstrate genuine consent.

The Ninth Circuit outlined the standard in Berman v. Freedom Financial Network: browsewrap agreements are enforceable only if the website provides “reasonably conspicuous notice” and the consumer takes action that “unambiguously manifests assent.” Both conditions must be met.

Electronic Signatures

Electronic signatures carry the same weight as handwritten signatures under California Civil Code section 1633.7. In Espejo v. Southern California Permanente Medical Group (2016), a court upheld an arbitration agreement signed electronically during an online employment application.

When Consent Is Implied: Employment and Consumer Contexts

Sometimes consent is implied rather than express. This happens frequently in employment and consumer situations.

Employment Arbitration

In employment contexts, California law holds that “when an employee continues his or her employment after notification that an agreement to arbitration is a condition of continued employment, that employee has impliedly consented to the arbitration agreement.” Simply continuing to work after receiving notice can bind you to arbitration.

Courts have found that initial offers of employment provide sufficient consideration for mandatory arbitration agreements. The job offer itself—the opportunity to work—is the “something of value” exchanged for your agreement to arbitrate future disputes.

Consumer Arbitration

Consumer arbitration often involves contracts of adhesion—standardized agreements where the consumer has no power to negotiate terms. While courts recognize the imbalance in bargaining power, they still enforce these agreements if basic contract requirements are met.

The National Association of Consumer Advocates explains the problem clearly: “Before any problem arises, you lock yourself into only one option—forced arbitration—for resolving all future disputes or problems.” The contract typically names the arbitration company preferred by the business, and the clause often binds only the consumer—not the company.

Real-World Scenarios: When Consent Works and When It Fails

Understanding how consent plays out in real cases helps illustrate these principles. Below are three common scenarios with their outcomes.

Scenario 1: The New Employee

Situation: Maria receives a job offer from a large company. The onboarding paperwork includes an arbitration agreement requiring her to arbitrate all employment disputes. She signs without reading carefully. Two years later, Maria experiences workplace discrimination and wants to sue.

Key Takeaway: Maria’s signature created enforceable consent even though she did not understand the full implications. Courts do not require that parties actually read or understand every term—only that they had the opportunity to do so.

Scenario 2: The Online Shopper

Situation: James buys running shoes from an e-commerce website. During checkout, a hyperlink to “Terms of Service” appears at the bottom of the page. James does not click it. The Terms include an arbitration clause. Later, James suffers injuries from defective shoes and wants to sue.

Key Takeaway: Whether James is bound depends on website design. If the Terms were not conspicuously displayed and he was not required to take affirmative action, the arbitration clause may be unenforceable.

Scenario 3: The Informed Consumer

Situation: Sarah signs a contract for home construction. The contract includes an arbitration clause in bold text on page two. The contract also includes a 30-day opt-out period. Sarah reads the clause, decides not to opt out, and signs. A year later, construction defects emerge.

Key Takeaway: Sarah’s informed consent—with opportunity to opt out—creates a highly enforceable arbitration agreement. Courts view failure to opt out as affirmative consent.

Legal Grounds to Challenge Consent

Even when you signed an arbitration agreement, several legal defenses may render it unenforceable. These defenses apply under both federal and state law.

No Agreement Exists

The party seeking arbitration must prove an agreement was actually formed. In Gamboa v. Northeast Community Clinic (2021), a California court ruled that merely presenting a written arbitration agreement—without supporting testimony—failed to establish a valid agreement. The employer could have met this burden with a declaration from its custodian of records but failed to provide admissible evidence.

Fraud

If you were deceived into signing an arbitration agreement, it may be unenforceable. Fraud claims typically involve misrepresentation about the agreement’s terms or effects. However, courts distinguish between “fraud in the execution” (the entire contract is void) and “fraud in the inducement” (only certain terms may be voidable).

Duress or Coercion

Agreements signed under threats or improper pressure lack valid consent. For example, if an employer threatens immediate termination unless an employee signs an arbitration agreement right now without time to review, duress may exist.

Unconscionability

This is the most common defense. Unconscionability requires both procedural and substantive elements, though courts use a sliding scale—more of one element compensates for less of the other.

Procedural unconscionability examines the circumstances of contract formation:

• How much time did you have to consider the agreement?
• What pressure was exerted to sign?
• Was the arbitration clause hidden in lengthy documents?
• Did you have access to legal counsel?

Substantive unconscionability examines the agreement’s terms:

• Are terms one-sided, favoring only the employer or business?
• Does the agreement unreasonably limit your remedies or discovery rights?
• Are arbitration costs prohibitively expensive?
• Does the agreement impose unfair limitations on the statute of limitations?

In Armendariz v. Foundation Health Psychcare Services (2000), the California Supreme Court established that “the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required.”

State Law Differences: California, Texas, and New York

While the FAA provides the federal framework, state laws create important variations in how arbitration consent is analyzed.

California

California maintains stronger consumer and employee protections than most states. California Civil Code section 1670.5 codifies the unconscionability doctrine, allowing courts to refuse enforcement of unconscionable contracts.

Senate Bill 940, effective January 1, 2025, prohibits sellers from requiring California consumers to arbitrate claims outside California or under another state’s law. However, this law may face federal preemption challenges under FAA precedent.

California’s Private Attorneys General Act (PAGA) allows employees to pursue claims on behalf of the state for labor violations. In Viking River Cruises v. Moriana (2022), the U.S. Supreme Court held that employers can compel arbitration of individual PAGA claims, but questions remain about representative claims.

Texas

Texas courts generally favor arbitration enforcement. The Texas Arbitration Act applies to agreements not covered by the FAA, and courts apply both statutes concurrently in many cases.

In 2024, the Texas Supreme Court reinforced that when an arbitration agreement contains a “delegation clause” (giving the arbitrator power to decide enforceability), a party challenging unconscionability must specifically attack the delegation clause itself—not the entire agreement. This creates a high bar for unconscionability challenges in Texas.

New York

New York is considering legislation to prohibit mandatory arbitration in consumer and employment contracts. Assembly Bill 2025-A93 would ban such clauses, but it has not yet passed. Additionally, Senate Bill 2025-S4375A would require businesses to disclose and explain arbitration clauses to consumers.

Currently, New York follows standard FAA preemption rules, meaning most state-level restrictions on arbitration are preempted by federal law.

How to Opt Out of Arbitration Agreements

Some contracts allow you to opt out of arbitration clauses within a limited time window. This is your best opportunity to preserve your legal rights.

Step-by-Step Opt-Out Process

1. Review your contract immediately. Look for arbitration clauses and opt-out provisions. The National Consumer Law Center recommends checking for deadlines—typically 30 to 60 days after signing.
2. Follow the opt-out instructions exactly. The contract may require specific methods, such as written notice to a particular address. In Mohamed v. Uber, the court found that requiring hand-delivery or overnight mail for opt-out did not provide a “meaningful opportunity” to avoid arbitration.
3. Send your opt-out notice in writing. Include your name, the date of the agreement, and a clear statement that you opt out of the arbitration clause.
4. Keep proof of timely delivery. Use certified mail, express mail, or another method providing delivery confirmation.
5. Save copies of everything. Keep your opt-out letter and delivery proof indefinitely.

Sample Opt-Out Letter

According to the NCLC, your letter should include:

“I am writing to opt out of the arbitration clause in my agreement with [COMPANY] dated [DATE] for [DESCRIBE WHAT THE AGREEMENT COVERS]. If you have any questions, you may reach me at [YOUR CONTACT INFORMATION].”

The Ending Forced Arbitration Act: A Major Exception

In March 2022, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA). This law creates an important exception to arbitration consent.

Under the EFAA, individuals alleging sexual assault or sexual harassment can choose whether to arbitrate or go to court—regardless of any pre-dispute arbitration agreement. The employee or consumer makes this election after the dispute arises, restoring meaningful consent.

Recent California court decisions have expanded the EFAA’s scope. In Doe v. Second Street Corp. and Liu v. Miniso Depot CA, courts held that the EFAA covers the entire case—not just sexual harassment claims. This means if a lawsuit includes sexual harassment claims alongside other claims (like wage violations), the entire case may escape mandatory arbitration.

The FAIR Act: Proposed Legislation

The Forced Arbitration Injustice Repeal (FAIR) Act would eliminate forced arbitration in employment, consumer, civil rights, and antitrust cases. The bill has passed the House multiple times but has not passed the Senate.

In September 2025, Congressman Hank Johnson and Senator Richard Blumenthal reintroduced the FAIR Act. If enacted, it would allow consumers and workers to choose between arbitration and court after a dispute occurs—restoring genuine consent to the process.

Non-Signatories and Consent: A Complex Issue

Can someone who never signed an arbitration agreement be forced to arbitrate? The answer is sometimes yes, through legal doctrines like equitable estoppel.

Equitable estoppel allows a non-signatory to enforce—or be bound by—an arbitration agreement in certain circumstances. Courts apply this doctrine when:

1. The signatory relies on the underlying contract in asserting claims against the non-signatory, or
2. The signatory alleges “substantially interdependent and concerted misconduct” by both signatories and non-signatories.

In employment contexts, courts have applied equitable estoppel when employees sue alleged “joint employers” who did not sign the arbitration agreement but are closely connected to the signatory employer.

Binding vs. Non-Binding Arbitration: Understanding the Difference

Not all arbitration eliminates your right to court. The type of arbitration matters significantly.

Binding arbitration means the arbitrator’s decision is final and legally enforceable. Both parties waive the right to trial and agree to accept the arbitrator’s ruling. Appeals exist only in narrow circumstances, such as arbitrator misconduct or fraud.

Non-binding arbitration provides an advisory opinion. The arbitrator issues a decision, but parties are not required to accept it. If either party rejects the ruling, they may proceed to litigation.

Mistakes to Avoid with Arbitration Agreements

Understanding common errors helps protect your rights. Below are critical mistakes to avoid.

Mistake 1: Not Reading Contracts Before Signing

Many people skim contracts or skip the fine print entirely. According to consumer attorneys, “the vast and overwhelming majority of consumers… have been utterly unaware that there was this sort of clause in their standard contract.”

Negative outcome: You bind yourself to arbitration without realizing it, losing your right to sue in court or join class actions.

Mistake 2: Missing the Opt-Out Deadline

Opt-out windows are typically 30 to 60 days—and they pass quickly. Failing to act within this window waives your right to opt out.

Negative outcome: Courts view failure to opt out as evidence of voluntary consent, making the agreement more enforceable.

Mistake 3: Assuming Arbitration Clauses Are Unenforceable

Some people believe arbitration clauses “won’t hold up in court.” The opposite is true. Courts consistently enforce arbitration agreements, even in take-it-or-leave-it employment contracts.

Negative outcome: You proceed with litigation, only to have the case dismissed and sent to arbitration—wasting time and money.

Mistake 4: Waiting Too Long to Compel Arbitration (Employers)

Employers who know about arbitration agreements but delay seeking arbitration may waive the right. After the Supreme Court’s Morgan v. Sundance decision (2022), parties no longer need to show prejudice to prove waiver.

Negative outcome: The court denies the motion to compel arbitration based on waiver, forcing litigation the employer sought to avoid.

Mistake 5: Drafting Ambiguous Arbitration Clauses (Businesses)

Vague clauses like “any disputes shall be resolved by arbitration” without specifying rules, location, or scope create problems. According to arbitration experts, such clauses “may be deemed unenforceable for lack of mutual assent or certainty.”

Negative outcome: The parties must litigate whether arbitration applies before ever reaching the merits—defeating the purpose of the clause.

Do’s and Don’ts for Arbitration Agreements

Do’s

✅ Do read the entire contract before signing. Pay special attention to sections labeled “Dispute Resolution” or “Arbitration.” The time investment protects your legal rights.

✅ Do exercise opt-out rights promptly. If an opt-out provision exists, use it within the deadline. You can always agree to arbitrate later if a dispute arises.

✅ Do keep copies of all agreements. Store physical and digital copies of any contracts containing arbitration clauses. You may need them years later.

✅ Do consult an attorney before signing important contracts. An employment lawyer or consumer attorney can explain what you are giving up and whether the terms are fair.

✅ Do challenge unconscionable terms. If an agreement is procedurally and substantively unfair, courts may refuse enforcement. Do not assume you have no options.

Don’ts

❌ Don’t assume arbitration is always bad. Arbitration can be faster and less expensive than litigation. Evaluate each situation individually.

❌ Don’t ignore arbitration clauses in employment offers. The excitement of a new job may distract from important legal terms. Take time to review.

❌ Don’t sign under pressure. Requests for immediate signatures without review time may indicate problematic terms—and could support an unconscionability defense.

❌ Don’t rely on “unsigned” status. In some cases, continuing employment or using a service implies consent even without a physical signature.

❌ Don’t waive arbitration accidentally. If you want to preserve the right to arbitrate, assert it immediately when litigation begins.

Pros and Cons of Arbitration Consent

Pros (Benefits)

Speed: Arbitration typically resolves disputes faster than litigation. Court backlogs can delay cases for years; arbitration proceedings often conclude within months.

Cost Savings: Arbitration generally costs less than full litigation. Limited discovery and streamlined procedures reduce attorney fees and expenses.

Privacy: Arbitration proceedings are private. Unlike public court records, arbitration details remain confidential, protecting reputation and sensitive information.

Flexibility: Parties have more control over the process, including selecting arbitrators with relevant expertise and setting procedural rules.

Predictability: Arbitrators, often retired judges or experienced attorneys, tend to produce more consistent outcomes than juries.

Cons (Drawbacks)

Loss of Jury Rights: You give up your constitutional right to a jury trial. For employees and consumers, juries often provide more favorable outcomes.

Limited Discovery: Arbitration restricts the evidence-gathering process. This may disadvantage parties who need extensive information to prove their case.

No Appeal: Binding arbitration decisions are essentially final. If the arbitrator makes an error, you have virtually no recourse.

Class Action Waivers: Most arbitration agreements prohibit class actions, forcing individual claims. Small-dollar claims become economically impossible to pursue.

Employer Advantage: Studies show arbitrators tend to favor employers and award less money when employees win. Repeat-player businesses build relationships with arbitration providers.

Key Court Decisions on Arbitration Consent

Understanding landmark cases helps predict how courts will treat your agreement.

AT&T Mobility v. Concepcion (2011)

The Supreme Court held 5-4 that the FAA preempts state laws prohibiting class action waivers in arbitration agreements. This case dramatically expanded enforceability of consumer arbitration clauses.

Epic Systems Corp. v. Lewis (2018)

The Court ruled 5-4 that employment contracts requiring individual arbitration and prohibiting class actions are enforceable under the FAA, even when employees argue such provisions violate their collective action rights.

Viking River Cruises v. Moriana (2022)

The Court held 8-1 that the FAA preempts California’s rule prohibiting waivers of PAGA representative claims. Employers can compel arbitration of individual PAGA claims.

Smith v. Spizzirri (2024)

The Court unanimously held that when a court finds claims are arbitrable and a party requests a stay, the court must stay (not dismiss) the case pending arbitration. This protects parties’ rights and preserves statutes of limitations during arbitration.

Morgan v. Sundance (2022)

The Court unanimously held that courts should not require a showing of prejudice to find waiver of arbitration rights. This standard contract principle now applies equally to arbitration agreements.

Arbitration Costs: What to Expect

Arbitration costs can be substantial, affecting whether consent is meaningful.

The American Arbitration Association (AAA) updated its fee schedule effective January 2024. For consumer arbitrations:

Many employment arbitration agreements require the employer to pay all costs for non-executive employees. Courts may find agreements requiring employees to split arbitrator fees substantively unconscionable, especially when costs exceed what court filing would require.

FAQs

Can I be forced to arbitrate if I never signed an agreement?
No, generally not. However, courts may bind non-signatories through equitable estoppel or agency theories when claims are closely tied to signed agreements.

Does continuing employment create consent to arbitrate?
Yes. California law holds that continuing work after receiving notice of an arbitration requirement implies consent to the agreement.

Can I still sue for sexual harassment despite an arbitration clause?
Yes. The Ending Forced Arbitration Act lets victims choose court over arbitration for sexual assault and harassment claims.

Are browsewrap agreements enforceable?
Sometimes. Courts enforce them only if terms are reasonably conspicuous and users take action unambiguously manifesting assent.

Can I opt out of arbitration after signing?
Yes, if the agreement includes an opt-out provision. You must follow its requirements exactly within the deadline—typically 30 to 60 days.

What happens if an arbitration agreement is unconscionable?
Courts may refuse enforcement. They may invalidate the entire agreement or sever only the unconscionable provisions.

Does arbitration favor employers?
Yes, generally. Studies show employees win less often and receive smaller awards in arbitration compared to litigation.

Can I appeal an arbitration decision?
No, except in rare circumstances. Grounds for vacating an award include arbitrator misconduct or fraud—not errors of law.

Is a verbal arbitration agreement enforceable?
No. The FAA and most state laws require arbitration agreements to be in writing.

Can I negotiate arbitration terms before signing?
Yes, sometimes. Even in employment contexts, asking for modifications or opt-out provisions demonstrates informed consent and may succeed.

What is a “delegation clause” in arbitration agreements?
A delegation clause gives the arbitrator—not a court—power to decide enforceability questions. It makes unconscionability challenges harder.

Does the FAA apply to all contracts?
No. The FAA applies to contracts involving interstate commerce but exempts transportation workers’ employment contracts.