• Ban on Mandatory Predispute Arbitration Again Proposed in Congress
  • May 27, 2011 | Authors: Garen E. Dodge; J. Aloysius Hogan; Mark A. de Bernardo
  • Law Firm: Jackson Lewis LLP - Reston Office
  • The so-called Arbitration Fairness Act (S. 987, H.R. 1873) has been re-introduced in Congress.  It would amend the Federal Arbitration Act by banning mandatory, predispute arbitration agreements in employment, consumer, and civil rights matters.  Under the bills, workers and consumers may consent to arbitration only after a dispute arises.
     
    The bills would broaden the authority of the courts.  A provision of the legislation declares “the validity or enforceability of an agreement ... shall be determined by a court, rather than an arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement.”

    The bills seek to overturn a series of U.S. Supreme Court decisions that the sponsors say have broadened the intended application of the Federal Arbitration Act.  (See our articles on two of those decisions, Supreme Court Strikes Down California’s Prohibition of Class Action Waivers in Arbitration Agreements and Supreme Court Holds Arbitration Provision in CBA May Bar Employee Federal Age Claims in Court.)  The sponsors maintain that the FAA should apply only to disputes between commercial entities of generally similar sophistication and bargaining power.

    Senators Al Franken (D-Minn.) and Richard Blumenthal (D-Conn.) and Representative Henry C. “Hank” Johnson, Jr. (D-Ga.) introduced the bills in their respective chambers on May 12, 2011.  Similar legislation was introduced, but did not make it out of committee in 2007 and 2009.

    As an alternative to litigation and because they are believed to allow more people to resolve concerns amicably, arbitration clauses have become commonplace in employment and consumer contracts.
     
    Supporters of employment arbitration say that compared to the costs, delays, and divisiveness of employment litigation, arbitration in its current form is a more sensible and conciliatory option for both employers and their employees.  Supporters of predispute arbitration argue that arbitration has the following advantages over litigation: (1) more employee complaints are addressed and resolved; (2) employee complaints are resolved sooner and with less tension; (3) employment relationships are more likely to be preserved, lowering turnover; (4) improved morale; (5) more effective communication; (6) enhanced constructive input by employees respecting company activities; and (7) better workplaces.

    Sponsors of these bills and other opponents of predispute arbitration claim that, absent mandatory arbitration agreements, parties would agree to arbitrate after the dispute arises. However, the experience of the American Arbitration Association, the largest arbitration provider in the world, indicates otherwise.  For example, according to AAA, only 3 percent to 6 percent (depending upon the year) of AAA employment arbitrations are the result of agreements to arbitrate made after a dispute has materialized.  AAA data for disputes between businesses show only 1.8 percent of arbitrations result from post-dispute agreements. Thus, eliminating predispute arbitration agreements likely would mean there will be no arbitration agreements at all.

    In his October 2009 testimony before the U.S. Senate Judiciary Committee, Jackson Lewis attorney Mark de Bernardo explained, “Once an individual has found a plaintiffs’ lawyer, the lawyer is convinced that a sizeable settlement or damages can be extracted on an expedited basis, a complaint has been drafted and filed, and the individual is reconciled to doing battle with his or her employer, he or she is not about to reverse course and retreat to an arbitration forum.... ”