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June 03, 2021

Congress Considers Ban on Mandatory Predispute Arbitration and Class Action Waivers


In its current session, Congress once again will consider legislation to prohibit mandatory predispute arbitration agreements and class action waivers in employment, consumer, antitrust, and civil rights disputes.

Congressman Hank Johnson (D-GA) recently reintroduced the Forced Arbitration Injustice Repeal Act, or FAIR Act, in the House of Representatives.

The FAIR Act passed the House in September 2019 with a vote of 225 to 186, with one Republican—Congressman Matt Gaetz (R-FL)—voting in favor. The Republican-controlled Senate did not bring the bill out of the Senate Judiciary Committee for a vote. With the Senate now under Democratic control, the FAIR Act will likely see a vote in both houses of Congress in the near future. President Biden has indicated his intent to sign the bill into law if it makes it to his desk.

Under the FAIR Act, “no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to an employment dispute, consumer dispute, antitrust dispute, or civil rights dispute.” FAIR Act, H.R. 963, 117th Cong. § 1 (2021). “Joint-actions” include joint, class, and collective actions. The ban would not cover collective bargaining agreements between labor organizations and employers. As currently drafted, the FAIR Act would apply to any claim that arises or accrues after the date of enactment, affecting millions of arbitration agreements and class action waivers entered into before that date.

Predispute arbitration agreements are currently enforceable under the Federal Arbitration Act (FAA). The FAA was enacted in 1925, but its scope has greatly expanded as a result of a series of federal court decisions since the 1980s. The proposed ban would undo the Supreme Court’s 2018 decision in Epic Systems v. Lewis, 138 S. Ct. 1612 (2018), which upheld the enforceability of class action waivers in the employment context.

The National Employment Law Project (NELP), which supports the FAIR Act, Congress Considers Ban on Mandatory Predispute Arbitration and Class Action WaiversBY BENJAMIN GOLDSTEINestimates that 55% of all private-sector non-union employees are subject to mandatory arbitration agreements, including 64% of workers earning less than $13 per hour. Hugh Baran, Nat’l Emp’t Law Project, Forced Arbitration Enabled Employers to Steal $12.6 Billion From Workers in Low Paid Jobs in 2019,

Opponents, including many in the business community, argue that the FAIR Act will increase the costs of doing business and settling disputes, lead to unnecessary litigation, and burden an already backlogged and under-funded court system. In protesting the bill, the U.S. Chamber of Commerce stated that “most consumer and employee disputes are not eligible to be resolved through a class action,” and that arbitration gives them “the only realistic avenue for obtaining relief.” Letter from Neil L. Bradley, U.S. Chamber of Com., Exec. Vice President & Chief Policy Officer, to Members of the U.S. Cong. (Mar. 8, 2021), s._505_h.r._963_fairact_congress.pdf.

Public interest and consumer advocacy groups, along with most Congressional Democrats, have lined up in support of the bill. They argue that arbitrations combined with class action waivers reduce employee and consumer access to justice and, because of the confidentiality of arbitration proceedings, allow companies to shield misconduct from public view. One legal scholar recently estimated that annually more than 98% of several hundred thousand potential employment claims subject to mandatory arbitration have gone unfiled. Estlund, The Black Hole of Mandatory Arbitration, 96 N.C. L. Rev. 679, 696 (2018). The study attributes the low case filings to a combination of the deterrent language of arbitration clauses, the small value of individual cases, as opposed to class actions, and, for those cases that actually make it in front of an attorney, the low economic incentive to take on such cases. Id. at 700-02. With claims assertable in court, the study argues, these incentives are altered, resulting in greater deterrence of illegal conduct by employers. Id. at 681.

But other studies point to the superiority of arbitration for employees. For example, a study by ndp | analytics, which was commissioned by the U.S. Chamber of Commerce Institute for Legal Reform, examined approximately 90,000 federal lawsuits and 10,000 arbitrations between 2014 and 2018. Nam D. Pham et al., Fairer, Better, Faster: An Empirical Assessment of Employment Arbitration, ndp | analytics, 5-6, analysis found that employee-plaintiffs in arbitrations won three times more often than in litigation, recovered almost twice as much in damages, and achieved these results on average in 100 fewer days. Id. at 5. The ndp | analytics study did not address arbitrations that went unfiled because of mandatory arbitration provisions and class waivers.

Questions also arise about the FAIR Act’s possible effect on current agreements and employment law precedents. Opponents voice concern that the bill could upend years of FAA-related jurisprudence and create upheaval for the millions of employment agreements containing arbitration and class action waiver provisions. The bill’s proponents fault mandated arbitrations for stunting legal development. Because arbitrator decisions have no precedential value, are often unavailable to the public, and do not always provide the arbitrator’s full reasoning, employment law is not developing to mirror changes in society and the modern workplace.

Once it passes the House as expected, the FAIR Act will require bipartisan support to overcome a Republican filibuster in the Senate.  

Benjamin Goldstein

Kessler Matura P.C.

Benjamin Goldstein is an Associate at Kessler Matura P.C. in Melville, NY