House Passes Bill to Ban Mandatory Employment Arbitration Agreements

Proposed legislation would also prohibit class-action waivers

Lisa Nagele-Piazza, J.D., SHRM-SCP By Lisa Nagele-Piazza, J.D., SHRM-SCP September 23, 2019
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Employers would be banned from enforcing pre-dispute arbitration agreements with employees under a bill that was approved Sept. 20 by the U.S. House of Representatives.

The Democrat-controlled House voted 225 to 186 to pass the Forced Arbitration Injustice Repeal (FAIR) Act. "Forced arbitration agreements undermine our indelible constitutional right to trial by jury, benefiting powerful businesses at the expense of American consumers and workers," said Rep. Hank Johnson, D-Ga., the bill's sponsor.

However, the bill will likely be "dead on arrival" in the Republican-controlled Senate, noted James Plunkett, an attorney with Ogletree Deakins in Washington, D.C.

Employer groups, including the Society for Human Resource Management (SHRM), oppose the bill.

A pre-dispute arbitration agreement allows employers and workers to agree in advance to have a neutral third party (an arbitrator) decide legal claims rather than sue in court. 

"The FAIR Act prohibits the use of pre-dispute arbitration agreements for employment purposes that through time have proven to be fair, effective and a less expensive means of resolving disputes compared to going to court," said Johnny C. Taylor, Jr., SHRM-SCP, SHRM's president and chief executive officer. A recent study by the Institute for Legal Reform found that employees won three times more often, received twice as much money and resolved their claims faster in arbitration.

"SHRM believes employers must have the ability to enact policies and procedures that best meet the needs of their individual organizations," Taylor wrote in a letter to House members.

Federal Law Favors Arbitration

The Federal Arbitration Act (FAA) sets a strong federal preference for enforcing valid arbitration agreements, and the U.S. Supreme Court has consistently upheld mandatory employment arbitration agreements and class-action waivers, so long as they are fairly written and don't limit workers' right to bring claims.

The FAIR Act "is an anti-business bill that essentially nullifies the FAA as to pre-dispute arbitration agreements involving employment and civil rights matters, antitrust matters, and consumer matters," said Robert Friedman, an attorney with Littler in Dallas and Austin, Texas. The bill would also prohibit class-action waivers and require courts, rather than arbitrators, to decide initial challenges to the enforceability of arbitration agreements. 

The FAIR Act would undo legal precedent from the Supreme Court and lower courts, which includes thousands of cases interpreting and upholding arbitration agreements under the FAA, Friedman said.

Supporters of the bill, however, say that legislation is needed to restore workers' access to the courts. "Forced arbitration is a secretive, closed system that deprives Americans of their day in court and shields corporations from accountability and scrutiny for abusive conduct," said Rep. Jerrold Nadler, D-N.Y. "We must ensure victims of sexual assault, racial discrimination, and other forms of corporate abuse and misconduct have a fair chance to hold their employers accountable."

Practical Considerations

The FAIR Act isn't expected to be signed into law, so for now, employers and employees can still agree in advance to settle workplace disputes through arbitration. 

Shannon Farmer, an attorney with Ballard Spahr in Philadelphia, noted that workers must be given all their substantive rights under labor and employment laws. "You can't have an agreement that prohibits employees from bringing discrimination claims or creates barriers to bringing a claim," she said.

Whether employers should use arbitration agreements and class-action waivers will depend on each organization's needs, she said. "Employers really need to think about the pros and cons for their workplace."

Arbitration can be beneficial because it is private, whereas court filings, including workers' complaints, are accessible by the public. Employers also may be able to avoid costly and complicated class actions if they require employees to individually arbitrate claims.

[SHRM members-only online discussion platform: SHRM Connect]

Arbitration could be faster and less expensive, Farmer said, but employers should note that they will generally pay all the arbitrator's costs, their own expenses and the employee's attorney fees if they lose the claim.

Some arbitrators are not employment lawyers and, unlike judges, don't have access to law clerks to do research on complicated employment issues, such as wage and hour claims under the Fair Labor Standards Act. Arbitrators tend to focus on reaching a compromise, Farmer said.

She recommended that employers think carefully about their reasons for requiring arbitration and develop an agreement that works best for them. "Don't just pull a boilerplate agreement off the Internet," she said. 

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