The FAIR Act, opposed by pro-business groups and supported by trial lawyers, would make many employment arbitration clauses unenforceable under federal law.
Mandatory arbitration clauses in consumer and employment contracts will no longer be enforced if a bill recently passed in the U.S. House of Representatives becomes law. The Forced Arbitration Injustice Repeal Act (FAIR) passed the House with 225 votes on September 18. 

Representative Colin Allred (D-TX-32) of Richardson was a co-sponsor of the bill along with several other Democratic congressional representatives from Texas. 

The bill specifically applies to arbitration clauses in employment, consumer, antitrust, or civil rights disputes. It also opens the door to class actions in these cases.

While consumers and employees can still voluntarily agree to arbitration, the law would prohibit businesses from implementing predispute arbitration policies with their employees, effectively bolstering the use of judges and courts for resolving employment and consumer disputes.

Notably, the legislation includes a carve-out for labor unions, stating in section 402 of the bill that, “nothing in this chapter shall apply to any arbitration provision in a contract between an employer and a labor organization or between labor organizations.”

“The right to go to court to protect yourself is an option everyone should have under the law, and this bill helps restore that right,” said Allred in a press release. “No institution should force folks to sign away their rights and have immunity from our nation’s laws. I am glad this bill received bipartisan support as it impacts nearly every family in North Texas and across the country.”  

Only one Republican co-sponsored the bill, Rep. Matt Gaetz (R-FL).

Allred’s office confirmed that they have been contacted by North Texas families adversely affected by arbitration clauses, which often require that parties settle a dispute with a private arbitrator rather than pursuing a trial by jury.

According to Pew Charitable Trusts research, about 70 percent of the banks they studied in 2016 use mandatory arbitration clauses in their consumer banking agreements. 

Arbitration clauses were targeted in 2017 by the controversial Consumer Financial Protection Bureau (CFPB), which issued a rule banning their use in consumer contracts. Based on a study CFPB conducted, “three out of four consumers the Bureau surveyed did not know whether their credit card agreement had an arbitration clause.”

The CFPB rule was subsequently overturned by a joint resolution of Congress in November 2017.  

Consumer Reports and the American Association of Justice, an association of trial attorneys, are some of those organizations that support the FAIR Act. They argue that limitations on evidence, discovery, and ability to appeal are considerations a consumer should understand before agreeing to arbitration.   

Not surprisingly, opposition to the FAIR Act can be found in the business community. 

The U.S. Chamber of Commerce and a coalition of trade associations sent a letter to Congress a few days ago urging opposition to the FAIR Act. 

“The use of pre-dispute arbitration clauses in contracts benefits consumers, small businesses and employees,” the letter posted on their website said, citing a study that found employees tend to recover more and reach quicker resolutions through arbitration than litigation.

The American Financial Services Association also pointed out that arbitration “is already governed by the Federal Arbitration Act and has been approved by the Supreme Court, which recognized arbitration as a fair and effective mode of settling disputes between borrowers and creditors.”

Consumer Reports takes a different view in its letter to Congress.

“The Federal Arbitration Act was enacted in 1925 to give businesses – with relatively equal bargaining power – options for resolving their business disputes. But ill-conceived Supreme Court rulings have warped that statute into a weapon that is being used against people who have no bargaining power.” 

A similar bill was introduced by Senator Richard Blumenthal (D-CT) in February, but it has not moved since being referred to the Senate Committee on the Judiciary.