Congress Proposes Legislation in An Attempt to Curtail Mandatory Arbitration Clauses
By Leslie A. Berkoff, Moritt Hock & Hamroff LLP
It is a commonplace for agreements governing, among other things, school loans, cell phone bills, and employment contracts, to contain mandatory arbitration clauses, which are intended to dictate the rules, venue and arbitrator for resolving a dispute. Oftentimes the goal can be to prevent consumer class actions. The Federal Arbitration Act explicitly recognizes these provisions as valid and enforceable absent independent grounds at law or equity that provide a basis to revoke the underlying agreement. While, historically, many states have attempted to legislate around these provisions, the Supreme Court has steadfastly upheld the validity of these clauses.
Recently, legislation has been proposed in Congress entitled the Forced Arbitration Injustice Repeal Act of 2019 (the “FAIR Act”), S. 635, H.R. 1423, which, if enacted, would amend title 9 of the United States Code and prospectively bar pre-dispute arbitration agreements and class-action waivers in consumer, employment, antitrust, and civil rights disputes. The FAIR Act would push issues of arbitrability to the courts as opposed to arbitrators and require courts to look to federal law to render determinations. This type of legislation has been attempted before including prior machinations entitled the “Arbitration Fairness Act” which Congress soundly defeated from 2007- 2018. In light of the breadth of decisions coming down from the Supreme Court this year, including the May 2018 Epic Systems decision, upholding the FAA provision, it is unlikely that this legislation will be successful. However, it is certainly worth paying attention to its progression through Congress.