Proposed Legislation: Arbitration Fairness Act of 2013

On May 7, 2013, United States House of Representative Hank Johnson (D-GA) introduced the Arbitration Fairness Act of 2013 (Senator Al Franken (D-MN) also introduced an identical version of the bill in the United States Senate). If enacted into law, the bill would ban pre-dispute forced arbitration of employment, consumer, antitrust, and civil rights claims. Arbitration is a form of alternative dispute resolution in which parties settle a dispute outside of the courtroom. A private arbitrator makes a decision on the claim(s) and the parties agree to be bound by that decision. In essence, an arbitration clause in an employment contract requires the employee to forgo their right to a trial should a legal dispute arise between the employer and employee. By cutting off access to the courthouse, these clauses can impede access to justice by requiring arbitration even before a dispute arises. Unlike the judicial system where cases are decided by judges (who are licensed attorneys) and/or juries who are required to follow legal precedent, cases in arbitration are decided by an arbitrator who does not have to be a licensed attorney and who is not required to follow legal precedent. Further, decisions rendered by a trial court are subject to review by appellate judges whose job is to ensure legal precedent is being followed, whereas an arbitrator’s decision is final and unreviewable. Perhaps most importantly, an arbitration agreement often attempts to limit or eliminate group/class claims, where a number of employees seek to band together to challenge the unlawful actions of their employer. Further, because arbitration proceedings cost more money than court proceedings, they favor the employer over the employee because employers typically have the necessary resources to proceed through the arbitration process and employees typically do not. In short, an arbitration clause is a vehicle for an employer to shield itself from unwanted lawsuits and publicity. It is thus no surprise that such clauses have become common in the employment context.

The legislation is significant to employees whose employer requires them to sign an arbitration agreement. Most employees have little choice of whether to submit their claims to arbitration because under federal law as well as the law of many states, employers can require such an agreement as a condition of employment. Employers are aware of their superior bargaining position in the employment relationship. Put differently, the deck is stacked against employees from the very beginning of the employment relationship. For every employee who refuses to agree to certain terms and conditions of employment, there is another employee who will agree to the employer’s terms. Employers can thus use their leverage to obtain an employee’s signature by presenting an offer of employment in a “take-it-or-leave-it” fashion. Even worse, many employees do not realize that they have waived certain rights when signing employment agreements. To be sure, arbitration itself is not an undesirable form of dispute resolution. But the proposed legislation recognizes that arbitration should be used when both parties voluntarily agree to it. The legislation thus prevents employers from coercing employees into arbitration.

Significantly, the legislation does not apply to arbitration clauses in collective bargaining agreements between employers and labor organizations. Those agreements are thus unaffected by the current legislation.

To read a copy of the House bill, click here.