Congress Intends to Alter Arbitration Act

          Arbitration clauses have become a part of our every day lives. Mandatory arbitration clauses are commonly found in auto insurance policies, employee handbooks, credit card bills, telephone contracts and health insurance plans. Mandatory arbitration clauses operate as an enforced alternative to a private citizen’s right to seek redress through the court system, forcing individuals into what is essentially a private legal system with which they are not familiar.

          When businesses draft arbitration clauses into non-negotiated contracts they are using their bargaining power to take away people’s legal rights to seek justice in a court of law. Arbitration is a fair and effective method of dispute resolution when parties involved mutually agree to arbitrate. However, if one side is dictating to the other that the dispute resolution mechanism is to be arbitration,  that may be seen as depriving individuals of equal justice under the law. Arbitration is a private justice system which generally has very limited rights for appeal.  While commercially savvy business people may mutually agree to this method of dispute resolution because of its many benefits, it may not be appropriate in all instances.

          If mandatory arbitration is imposed upon someone, it means they are being forced to give up the most fundamental legal protection: the right to seek equal justice under the law.  There are many laws which protect individuals against unequal treatment including acts of discrimination based on age, sex, religion, race, disability, and unequal pay for equal work. Examples of these laws are the Civil Rights Act and the Equal Pay Act.  But these laws can be rendered meaningless if they are unenforceable in court.  

          I have written previously in this space about the Federal Arbitration Act (FAA), which was enacted in 1925. Its goal was to allow an alternative forum for commercial parties on equal footing to resolve their disputes. The Arbitration Fairness Act of 2009, which is now pending before Congress, reflects the FAA’s original intent by requiring that agreements to arbitrate employment, consumer, franchise, or civil rights disputes be made after the dispute has arisen. The bill, which has 82 sponsors, would not prohibit arbitration, but rather would amend the FAA to prevent the use of pre-dispute mandatory arbitration clauses in consumer, employment and franchise agreements.  This legislation would allow pre-dispute mandatory arbitration to continue in most commercial, business-to-business agreements. Interestingly, in its present form, it would not apply to collective bargaining agreements.