House Passes FAIR Act to Ban Pre-Dispute Arbitration Agreements

31

On March 17, 2022, the U.S. House of Representatives passed the Forced Arbitration Injustice Repeal (FAIR) Act, H.R. 963. The bill, if enacted into law, would void all pre-dispute mandatory arbitration agreements in employment, antitrust, consumer, and civil rights matters. The FAIR Act also purports to eliminate pre-dispute class and collective action waiver provisions. The bill’s sponsor has stated the goal is to “restore fairness to the American justice system by reasserting individuals’ right to access the court system,” and individuals are not “forced into private arbitration, where the bigger party often has the advantage of choosing the arbitrator in an unappealable decision.”

The FAIR Act quickly follows on the heels of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which President Biden signed into law on March 3, 2022.  That new legislation renders unenforceable pre-dispute arbitration agreements in cases involving claims of sexual harassment or sexual assault. But, while Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act with some bipartisan support, the legislative success of the FAIR Act is less certain. 

In 2019, the Senate declined to pass a prior version of the FAIR Act after the House passed the bill. After the FAIR Act garnered the support of only one Republican member of the House, several industry groups, including the Society for Human Resource Management and HR Policy Association, stood in opposition of the FAIR Act. Opponents argue the bill would deprive employees, consumers, and companies of a faster, more accessible, and affordable alternative to court. They also point out the added burden on the country’s judicial system. And, while several Republican lawmakers have expressed support for overall arbitration reform, they are concerned about the sweeping scope of the proposed bill. 

If the FAIR Act were to pass in the Senate and be signed into law, it would nullify pre-dispute arbitration agreements and pre-dispute joint-action waivers with respect to employment, antitrust, consumer, and civil rights matters. For employment disputes, the Act would apply to discord surrounding the work relationship or prospective work relationship, including the terms of payment, discipline, or discharge. With a broad definition of employment and civil rights disputes, the Act would cover most employment-based claims, including discrimination, retaliation, and wage and hour disagreements, and apply to both employees and independent contractors. The Fair Act is not limited to employment disputes either. It extends to consumer disputes as well, which the Act defines as disputes involving one who seeks or acquires real or personal property, services, securities, investments, money, or credit for personal, family, or household purposes. The reach of the FAIR Act goes far beyond the types of claims addressed by the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. 

Similar to the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, the FAIR Act would invalidate clauses that delegate resolution of certain issues to an arbitrator instead of a judge in court. Whether the FAIR Act applies to a dispute and, therefore, cancels an arbitration agreement, is to be determined by a court and not an arbitrator. 

It is important to note, that the new law would only apply to pre-dispute agreements. Parties would still be free to elect arbitration once disputes arise. To be sure though, most parties who agree to arbitrate disputes do so before the dissension arises—not after. Moreover, the bill would not apply to arbitration provisions in collective bargaining agreements between employers and labor unions, such as grievance and arbitration provisions in labor contracts. However, employees would be able to seek judicial enforcement of any right arising under the Constitution, a state constitution, or a federal or state statute or public policy, despite the presence of a collective agreement.

While the chances of the FAIR Act passing the Senate are uncertain, employers should closely monitor related developments. If enacted, the bill would go into effect immediately, significantly limiting their dispute resolution options, and likely affecting countless existing contracts. Employers should also remember that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act has taken effect, and applies to sexual harassment and assault claims arising after the Act was adopted, regardless of when the arbitration agreement was signed. Any claims pending before the law came into effect are not covered and the pre-dispute agreements remain enforceable.

 

Kellen Scott is a shareholder in Chamberlain Hrdlicka’s Labor and Employment and Litigation sections. He represents businesses before state and federal administrative agencies and in court and arbitration proceedings, involving wage and hour, classification, and restrictive covenant issues. Scott also advises clients on a variety of pre-dispute issues. He can be reached at kellen.scott@chamberlainlaw.com.

LEAVE A REPLY

Please enter your comment!
Please enter your name here