Seyfarth Synopsis: On March 17, the House of Representatives passed the “Forced Arbitration Injustice Repeal Act of 2022” or the “FAIR Act,” which would ban the use of mandatory arbitration agreements and class and collective action waivers in the employment context (as well as for consumer, antitrust, and civil rights disputes). If the Act were to pass the Senate and be signed into law, it would represent a sea change for employers, overturn decades of Supreme Court case law, and require employers to completely rethink their arbitration programs. Although the Act’s prospects for passing the Senate are very uncertain, employers should pay close attention to developments in Washington, D.C., because, if passed, the Act would upend employers’ settled expectations with regard to their arbitration programs—not to mention impact businesses with regard to consumer and antitrust claims.
As we reported previously (here, here, and here), there has been a push in Congress and several states to ban enforcement of mandatory arbitration agreements for employment claims. State efforts have largely—although not in every instance—been stymied by the Federal Arbitration Act, which provides that most arbitration agreements are enforceable according to their terms and which preempts states’ efforts to limit the enforceability of arbitration agreements. And at the federal level, at least until recently, there was not a bipartisan majority in Congress sufficient to pass bills limiting the enforceability of arbitration agreements.
Nonetheless, there has been more and more support for arbitration agreement reform in Congress over the last several years. For example, in April 2019 the Senate Judiciary Committee held a hearing entitled “Arbitration in America.” The hearing was chaired by Senator Lindsey Graham (R-SC), and the Committee heard detailed testimony both for and against mandatory arbitration. At the hearing, although they differed on how to address the issue, Senators in both parties expressed support for making arbitration more transparent.
This increased support in Congress recently culminated in a broad bipartisan agreement to limit the arbitrability of sexual assault and sexual harassment claims. Last month, Congress passed H.R. 4445 or the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” and President Biden signed the bill into law on March 3. A synopsis of that bill is available here.
Now, Congress’s push to limit the scope of arbitration continues—albeit on a much more party-line basis. On March 17, the House of Representatives took up and passed the “Forced Arbitration Injustice Repeal Act of 2022” or the “FAIR Act” (H.R. 963). When doing so, numerous members referenced testimony that Congress heard previously at the “Arbitration in America” hearing. Representatives also relied on many of the same fairness arguments invoked recently to support the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. Ultimately the FAIR Act passed the House by a vote of 222-209, with 1 Republican joining 221 Democrats in voting yes, and no Democrats voting no.
In a nutshell, the Act would prohibit, among other things, mandatory pre-dispute arbitration agreements in the employment, consumer, antitrust, and civil rights contexts. The Act’s impact on consumer and antitrust claims are beyond the scope of this article, but, relevant here, it would prohibit mandatory arbitration of employment claims, including wage-hour and discrimination claims. It would also preclude employers from maintaining class and collective action waivers. Thus, the Act represents an attempt to overturn decades of pro-arbitration decisions applying the Federal Arbitration Act in the employment context, including a number of seminal Supreme Court decisions.
The FAIR Act would amend the Federal Arbitration Act as follows:
- The Act would prohibit pre-dispute agreements that require arbitration of employment, consumer, antitrust, or civil rights disputes.
- The Act would prohibit stand -alone class and collective action waivers for employment, consumer, antitrust, or civil rights disputes.
- The Act defines employment and civil rights disputes broadly, to cover most employment-based claims, including discrimination and wage-hour claims.
- The Act covers all arbitration agreements on the covered topics, regardless of whether the individual at issue is an employee or an independent contractor.
- The Act specifically covers employment and civil rights disputes brought as class or collective actions under Federal Rule of Civil Procedure 23 or Section 216(b) of the Fair Labor Standards Act.
- Federal law determines whether the Act applies to any particular dispute, and a court, not an arbitrator, decides the applicability of the Act to any specific arbitration agreement, even if the parties have delegated questions of arbitrability to an arbitrator.
- The Act does not apply to most arbitration provisions in a contract between an employer and a labor organization or between labor organizations, such as grievance and arbitration provisions in labor contracts. However, the Act precludes such arbitration agreements from waiving the right of a worker to seek judicial enforcement of a right arising under the Constitution, a state constitution, or a federal or state statute or public policy.
- The Act is effective on the date it is enacted—if that were to occur—and it would apply with respect to any dispute or claim that arises or accrues on or after the enactment date.
The Act now goes to the Senate. It is unknown whether the Act can garner the support it needs to pass the Senate. Although several Republican senators have expressed support for arbitration reform, the Act would need the support of at least 10 Republicans to survive a filibuster, if one were to be made. Currently, it is unclear whether the Act has that amount of support. By way of comparison, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act had 10 Republican co-sponsors before it came to vote, while the FAIR Act currently has none. That being said, opponents of mandatory arbitration for employment claims currently have momentum. As such, employers should continue to monitor events in Washington, D.C., as change may happen quickly, and, if passed, the FAIR Act would change employment arbitration as we know it.