Under a growing number of consumer and employment agreements, companies are requiring disputes to be resolved through arbitration, a method of dispute resolution involving a neutral, private third party, rather than a judicial proceeding. In 2015, for example, the Consumer Financial Protection Bureau found that tens of millions of consumers use consumer financial products that are subject to arbitration clauses. In nonunion workplaces, it is estimated that at least a quarter of all employees are now subject to mandatory arbitration agreements. While arbitration is often viewed as a faster and less expensive alternative to litigation, consumer advocates and others maintain that mandatory arbitration agreements create one-sided arrangements that deny consumers and employees advantages afforded by a judicial proceeding, such as the availability of a jury trial. The Federal Arbitration Act (FAA or the Act) was enacted in 1925 to ensure the validity and enforcement of arbitration agreements in any "maritime transaction or ... contract evidencing a transaction involving commerce[.]" The U.S. Supreme Court (Court) has recognized the FAA as evidencing "a national policy favoring arbitration." The application of the FAA, however, particularly in light of various state law requirements and the use of different types of arbitration agreements, has raised numerous legal questions and been the subject of several cases before the Court. Concern over a perceived lack of "meaningful choice" to decide whether to submit a claim to arbitration has also spurred recent federal regulatory action, as well as legislation that would amend the FAA to render pre-dispute arbitration agreements unenforceable. This report examines the FAA and reviews the Court's decisions involving the statute's preemption of state law requirements. The report also explores the Court's decisions involving mandatory arbitration agreements that prohibit a consumer or employee from maintaining a class or collective action. In its October 2017 term, the Court will consider three consolidated cases that challenge such agreements on the grounds that they violate the right to engage in "other concerted activities" under the National Labor Relations Act (NLRA). Section 2 of the FAA provides: [a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. By enacting Section 2, Congress sought generally to promote the enforcement of arbitration agreements. Historically, American courts viewed arbitration with judicial hostility. It is believed that this hostility flowed from a similar enmity displayed by English courts. Arbitration infringed on the livelihood of English judges who were paid fees based on the number of cases they decided. English courts were also generally unwilling to surrender their jurisdiction over various disputes. The hostility toward arbitration subsided as industrialization led to an increased number of business disputes. In 1924, the Court upheld a New York law that compelled arbitration in a dispute involving a maritime contract. The Court's decision in Red Cross Line v. Atlantic Fruit Company is believed to have opened the door for federal legislation that recognized the validity of arbitration agreements. President Calvin Coolidge signed the United States Arbitration Act (commonly referred to as the Federal Arbitration Act) on February 12, 1925. The enactment of the new law "declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." While Congress's primary motivation for drafting the FAA reflected its interest in protecting the enforcement of arbitration agreements as agreed to by the contracting parties, it also understood the potential benefits that would be provided by the law's enactment: It is practically appropriate that the action should be taken at this time when there is so much agitation against the costliness and delays of litigation. These matters can be largely eliminated by agreements for arbitration, if arbitration agreements are made valid and enforceable. Although Section 2 of the FAA requires the enforcement of arbitration agreements in maritime transactions and contracts "evidencing a transaction involving commerce," the precise scope of this latter group of contracts has not always been certain. Congress provided a definition for the term "commerce" in Section 1 of the FAA, but it did not identify the extent to which a contract must "evidenc[e] a transaction involving commerce" before the FAA would apply. Prior to 1995, there was a split among courts interpreting Section 2. Some courts concluded that the FAA applied only to those contracts where the parties "contemplated" an interstate commerce connection. In Burke County Public Schools Board of Education v. Shaver Partnership , for example, a North Carolina court stated that where performance of the contract "necessarily involves, so that the parties to the agreement must have contemplated, substantial interstate activity the contract evidences a transaction involving commerce within the meaning of the Federal Arbitration Act." Other courts held that the Section 2 phrase "involving commerce" reached to the limits of Congress's power under the Commerce Clause. In Snyder v. Smith , for example, the U.S. Court of Appeals for the Seventh Circuit (Seventh Circuit) maintained that the courts should take into account Congress's broad power to regulate under the Commerce Clause when deciding which contracts involve commerce. Because Congress may reach activities "affecting" interstate commerce under its Commerce Clause authority, the Seventh Circuit reasoned that it was logical to conclude that any contract affecting interstate commerce falls under Section 2 of the FAA. In 1995, the Supreme Court determined that a broad interpretation of "involving commerce" is appropriate. In Allied-Bruce Terminix Companies, Inc. v. Dobson , the Court held in a 7-2 opinion authored by Justice Breyer that the phrase "involving commerce" signaled the full exercise of Congress's power under the Commerce Clause. The Court concluded that the FAA's legislative history "indicates an expansive congressional intent." For example, the House Report that accompanied the FAA stated that the Act's "'control over interstate commerce reaches not only the actual physical interstate shipment of goods but also contracts relating to interstate commerce.'" In addition, remarks in the Congressional Record indicated that the FAA "'affects contracts relating to interstate subjects and contracts in admiralty.'" The Court maintained that the word "involve" should be read as the functional equivalent of the word "affect." Because the phrase "affecting commerce" normally signals Congress's intent to exercise its Commerce Clause powers to the fullest extent, the Court reasoned that the use of the phrase "involving commerce" should be given a similar reading. After concluding that the phrase "involving commerce" should be interpreted broadly, the Dobson Court further determined that the FAA applies to all contracts that involve commerce and does not require the contemplation of an interstate commerce connection by the parties. The Court found that a "contemplation of the parties" requirement was inconsistent with the FAA's basic purpose of helping parties avoid litigation. Such a requirement invited litigation about what was or was not contemplated by the parties. Any congressional recognition of an expedited dispute resolution system at the time the FAA was drafted would be undermined by this additional litigation. In 2001, the Court confirmed that the FAA also covers employment agreements that require arbitration to resolve work-related disputes. In Circuit City Stores, Inc. v. Adams , the Court held in a 5-4 opinion authored by Justice Kennedy that an employment application that included a mandatory arbitration provision was not excluded from the FAA's coverage pursuant to the statute's exemption clause. Section 1 of the FAA provides that it will not apply to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The Court concluded that the Section 1 exemption clause should be given a narrow construction, and interpreted it to apply only to contracts with seamen, railroad employees, and other transportation employees. According to the Court, a reading of the phrase "any other class of workers engaged in foreign or interstate commerce" to exclude all employment contracts from the FAA's coverage would undermine the statute's specific enumeration of the "seamen" and "railroad employees" categories. The Court observed: Construing the residual phrase to exclude all employment contracts fails to give independent effect to the statute's enumeration of the specific categories of workers which precedes it; there would be no need for Congress to use the phrases "seamen" and "railroad employees" if those same classes of workers were subsumed within the meaning of the "engaged in ... commerce" residual clause. The Court also noted that the FAA's exclusion of contracts involving seamen and rail employees was reasonable given the adoption of federal legislation, such as the Shipping Commissioners Act of 1872 and the Transportation Act of 1920, that provided for the arbitration of their disputes. In light of these laws, the Court opined that the exclusion would allow "established or developing statutory dispute resolution schemes" to remain undisturbed. Historically, states have played an active role in the regulation of arbitration agreements, and all fifty states currently maintain statutes that operate alongside the FAA and govern the validity of arbitration agreements and awards. However, state legislatures and state courts have also sought to place various restrictions on the enforcement of mandatory arbitration clauses and proceedings, particularly in situations where there may be unequal bargaining power between the contracting parties. These restrictions have included state requirements that mandate a judicial forum for certain kinds of legal disputes, as well as those that impose special conditions or procedural safeguards on the arbitration process. As the Supreme Court has noted, Section 2 of the FAA "limits the grounds for denying enforcement of 'written provision[s] in ... contract[s]' providing for arbitration," and because of these limits, courts commonly find that the FAA preempts state laws or judicial rules that interfere with these contracts.