House Passes Bill to Ban Pre-Dispute Employment Arbitration Pacts

The U.S. House of Representatives has approved a bill that would prohibit employers from enforcing arbitration agreements that workers sign before disputes arise. However, the Democrat-backed measure may face resistance in the Senate because Republican lawmakers have raised concerns about the bill's reach.

The action comes on the heels of a new law banning such agreements for sexual-harassment claims, but the proposed legislation is much more expansive. "It covers essentially all employment disputes and would even apply to many disputes between companies and their independent contractors," noted Nick Chandler, an attorney with Alston & Bird in Atlanta and New York City.

Broad Reach

The Forced Arbitration Injustice Repeal (FAIR) Act, H.R. 963, passed the House in a 222 to 209 vote on March 17. The proposed legislation would broadly ban employers and workers from agreeing in advance to have legal claims decided by a neutral third party—an arbitrator—rather than a court. 

"The bill passed in the House with only one Republican voting in favor, so it's unclear to me whether this bill can garner sufficient support to pass in the Senate," Chandler said.

Notably, the Senate declined to pass the bill in 2019, and many business groups, including the Society for Human Resource Management (SHRM), oppose H.R. 963.

"Arbitration provides employees and employers a fair, effective and timely process for resolving workplace disputes," said Emily M. Dickens, SHRM's chief of staff, head of government affairs and corporate secretary.

"The FAIR Act, by prohibiting the use of pre-dispute arbitration agreements for employment purposes, would undermine the ability of HR professionals to deliver positive social and organizational change on behalf of our country's workers," Dickens added. "Arbitration is fair and effective, and it gives employees procedural protection. It is also less expensive than litigation, which excludes those without resources for legal representation."

Congress Debates Impact of Bill

If enacted, the FAIR Act would invalidate pre-dispute arbitration agreements and joint-action waivers for employment, consumer, antitrust and civil rights disputes.

The bill's sponsor, Rep. Hank Johnson, D-Ga., said H.R. 963 would "restore fairness to the American justice system by reasserting individuals' right to access the court system." He argued that workers often contract with "more powerful entities" that have the advantage of choosing an arbitrator who will make a final and binding decision about the dispute.

Rep. Jerry Nadler, D-N.Y., noted that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (H.R. 4445), which President Joe Biden signed into law on March 3, had bipartisan support. "This bill simply extends the same basic fairness in that bill to other workers and consumers," he said.

Rep. Dan Bishop, R-N.C., however, raised concerns that the broad prohibitions in the FAIR Act would prevent parties from freely entering into contracts and would burden the judicial system. "This bill will ban arbitration agreements across nearly all contracts," he said. "It outlaws arbitration agreements with respect to not only big, huge corporations but the most humble businesses and parties in the country."

Bishop noted that injured parties who arbitrate their claims may get relief sooner and spend less money than they would in court.

Nadler emphasized that the bill would not ban all arbitration pacts—only mandatory pre-dispute agreements. Parties would still be free to choose arbitration after the dispute arises.

Workplace Considerations

If the FAIR Act is ultimately signed into law, it would take effect immediately and "apply with respect to any dispute or claim that arises or accrues on or after such date," according to the bill. The law would not apply to arbitration provisions in collective bargaining agreements between employers and labor unions. 

Employers should note that the new law banning pre-dispute agreements to arbitrate sexual-harassment claims, H.R. 4445, already took effect.

"Employers should keep in mind that the law applies to claims arising after the new law is enacted, even if the arbitration agreement itself was signed years ago," said Kevin White, an attorney with Hunton Andrews Kurth in Washington, D.C. In addition to individual claims, H.R. 4445 renders class-action waivers unenforceable for sexual-harassment and sexual-assault claims.

Sexual-harassment claims that were already pending when the bill was enacted are not covered, noted Adam Sencenbaugh, an attorney with Haynes Boone in Austin, Texas. Therefore, the pre-dispute agreement to arbitrate them remains enforceable.

Additionally, under H.R. 4445, workers can still choose to arbitrate covered claims after the dispute arises. Jessica Mason, an attorney with Foley & Lardner in Houston, noted that victims of sexual assault or sexual harassment may not always view the confidentiality of arbitration as a bad thing, so the law gives the person alleging such conduct the option to invoke the arbitration clause or invoke the law and proceed in court. "This gives complainants—but not employers—more control over the forum in which their dispute is heard," she said.

For now, federal law does not ban pre-dispute arbitration agreements for other types of employment-related claims.