An Update on the Arbitration Fairness Act by Margaret M. Huff

Pre-dispute mandatory arbitration agreements are increasingly required in employment contracts, credit card agreements, subprime mortgage loan agreements, retail installment sales of autos, computer purchase agreements, and service provider contracts.  Many of these agreements are contracts of adhesion, but are not necessarily unenforceable. 

House and Senate bills called The Arbitration Fairness Act of 2009 (“AFA”) are pending in Congress.  The AFA would void and make unenforceable all pre-dispute agreements to arbitrate a future dispute involving a “consumer,” “employment,” “franchise,” or “civil rights” dispute as defined in the AFA.    For copies of the legislation, see H.R. 1020  and S. 931

Acknowledging there are due process issues arising from application of pre-dispute arbitration clauses to consumer and employment cases, arbitration provider organizations developed special due process protocols to address some of these concerns.  See, e.g. American Arbitration Rules, Consumer Due Process Protocol and  Consumer Related Disputes Supplementary Procedures (effective September 15, 2005).

The AFA addresses due process and other issues that have persisted, despite past efforts of some of the major arbitration providers.  Examples of the spectrum of opinions in the debate and noteworthy developments are:
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ADR Articles: Arbitration Fairness Act Update
The House Bill:
  • amends the Federal Arbitration Act, Chapter 1, Title 9 of the U.S. Code, and
  • invalidates all mandatory pre-dispute agreements to arbitrate:
- employment, consumer, and franchise disputes, and
- disputes arising under any statute intended to protect civil rights.

The Senate Bill cleans up some problems in the House Bill.  It:
  • creates new Chapter 4 to Title 9 of the U.S. Code and does not amend the Federal Arbitration Act,
  • has a more specific definition of “civil rights dispute,” and
  • covers franchise disputes only if the franchisee has its principal place of business in the U.S.

Critics of the Bills

Many commentators believe the House Bill is clearly flawed.  For example, the House Bill likely causes unintended adverse consequences for international commercial arbitrations.  The Senate Bill includes some corrections of those flaws, but not all.  See Report of the Dispute Resolution Section on the Arbitration Fairness Act and Other Arbitration Acts (New York State Bar Association Dispute Resolution Section March 18, 2009).

The Association for Conflict Resolution (ACR) approved a detailed ACR task force report, “An Examination of the Arbitration Fairness Act of 2009” (Association for Conflict Resolution, report approved Dec. 1, 2009).  The ACR called for amendments to the Federal Arbitration Act, but stated that Congress should not pass the AFA bills in their current form.  “ACR Calls for Amendment to Federal Arbitration Act,” (Association for Conflict Resolution January 2010).  As stated in its January 2010 newsletter, the ACR called for Congress to amend the Federal Arbitration Act “to ensure that procedures governing the arbitration of ‘Consumer,’ ‘Employment,’ ‘Franchise,’ and ‘Civil Rights’ disputes are consistent with required due process and fairness elements.”

Other Federal Legislation Affecting Arbitration Has Passed in Congress

1.  Defense Appropriations

The FY2010 Defense Appropriations Act (P.L. 111-118; H.R. 3326) was signed into law on December 19, 2009.  It includes provisions that limit employment-related arbitration by federal contractors:
  • Section 8116 prohibits federal defense contractors with contracts larger than $1 million from requiring employees or independent contractors to arbitrate:
- Title VII civil rights disputes
- sexual assault/harassment claims
- other torts arising under the above violations (including claims re: negligent
hiring, supervision or retention)
  • The contractors must certify that they require each covered subcontractor (with > $1 million federal contracts) to not enter into or enforce any such pre-dispute arbitration agreement.
  • Provisions of Section 8116 may be waived by Secretary or Deputy Secretary of Defense if certain requirements are met and it’s necessary for national security.

2.Terminated Auto Dealers

The Consolidated Apprpriations Act (P.L. 111-117; H.R. 3288) was signed into law on December 16, 2009.  It includes Section 747, providing that certain terminated U.S. auto dealers have the right to seek reinstatement of their dealerships through binding arbitration, if the Act's requirements are met.

Conclusion

Litigators and ADR professionals alike will continue to be interested in the legislative debates and Congressional action that impacts arbitration of consumer and employment disputes.

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Copyright Margaret M. Huff 2010.  All rights reserved.

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  • Testimony of Richard Naimark, Senior Vice President of the American Arbitration Association, Hearing before U.S. Senate Committee on the Judiciary, Subcommittee on the Constitution,  (December 12, 2007).
  • Testimony of F. Paul Bland, staff attorney at Public Justice representing consumers, Hearing before U.S. Senate Committee on the Judiciary, Subcommittee on the Constitution, “S. 1782: The Arbitration Fairness Act of 2007” (December 12, 2007).
  • Some evidence that arbitration can benefit the “little guy,” not just large corporations, is found in  data reported in a report, Consumer Arbitration Task Force - Searle Civil Justice Institute “Consumer Arbitration before the American Arbitration Association:  Preliminary Report, (March 2009) (Searle Civil Justice Institute at Northwestern University School of Law empirical study of American Arbitration Association consumer arbitrations). 
  • In the aftermath of a lawsuit filed by the Minnesota Attorney General against the National Arbitration Forum (NAF), the AAA suspended its consumer debt-collection arbitrations in cases where the company is the party seeking arbitration (but not other types of consumer arbitrations); AAA intends to return to debt collection arbitrations when appropriate procedural safeguards have been implemented.  See “AAA Announces Moratorium on Consumer Debt Collection Arbitration Cases,” AAA press release July 27, 2009.