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Bill would curb mandatory arbitration under FAA

February 5th, 2016  |  Pamela Wolf

Senator Patrick Leahy (D-Vt.) has introduced a bill that would curb mandatory arbitration in employment disputes, civil rights cases, and other lawsuits. The Restoring Statutory Rights Act is aimed at restoring “the rights of Americans who too often are forced into mandatory arbitration,” as Leahy put it. Senator Al Franken (D-Minn.) is the lead cosponsor of the legislation.

Introduced on February 4, the bill would ensure that when Congress or the states have created rights and remedies for injured victims, victims are able to enforce those rights and remedies in court, according to its sponsors. The legislation would clarify also that when states take action to address forced arbitration, like Vermont and other states have tried to do, federal law should not interfere.

The problem. The proposed legislation, S. 2506, takes issue, among other things, with recent court decisions, namely the Supreme Court’s AT&T Mobility v. Concepcion and American Express Co. v. Italian Colors Restaurant, which “have interpreted the Federal Arbitration Act to broadly preempt rights and remedies established under substantive State and Federal law.” As a result, business entities are able “to avoid or nullify legal duties created by congressional enactment, resulting in millions of people in the United States being unable to vindicate their rights in State and Federal courts,” the proposal explains.

“This problem has meaningful, real-world implications for Americans’ ability to seek justice,” Leahy said in a prepared statement. “When victims are forced into private arbitration, their cases proceed without public record. The cases cannot serve as precedent for future injustices, and the plaintiffs—hardworking consumers—cannot obtain a meaningful appeal. An arbitrator is selected by the corporate defendant, creating incentives that favor repeat corporate players. In many cases, forced arbitration stops victims’ legal actions altogether: by requiring victims to waive their legal right to join with other victims in a class action, arbitration clauses often remove the crucial tool that plaintiffs need to afford pursuing their claims.”

The solution. The bill would solve the problem by clarifying that “congressionally established rights and remedies may not be waived prior to the institution of a dispute by the party intended to be protected by such statute.” The legislation is also intended to “reinstate and reaffirm existing rights and remedies of the people of the United States enacted since the enactment of the Federal Arbitration Act regarding access to the courts that have, or may have been, abrogated or diminished.”

Violations of state and federal law or constitutions. The Restoring Statutory Rights Act would amend the FAA, 9 U.S.C. Section 2, to exclude enforcement of a written provision that mandates arbitration of a claim for damages or injunctive relief that is brought by an individual or small business concern (as defined in Sec. 3 of the Small Business Act), in either an individual or representative capacity, that arises from an alleged violation of a state or federal statute, U.S. Constitution, or a state constitution, unless the written arbitration “is entered into by both parties after the claim has arisen and pertains solely to an existing claim.” (Emphasis added)

Grounds for revocation. The bill would also clarify that reasons for not enforcing an arbitration agreement, “grounds as exist at law or in equity for the revocation of a contract,” include a state or federal statute, or a state or federal court finding “that prohibits the agreement to arbitrate on grounds that the agreement is unconscionable, invalid because there was no meeting of the minds, or otherwise unenforceable as a matter of contract law or public policy.”

Who decides validity and enforcement? Notably, S. 2506 leaves the determination of whether the arbitration agreement is valid and enforceable under the FAA to the courts, rather than arbitrators, “irrespective of whether the party resisting arbitration challenges the agreement to arbitrate specifically or in conjunction with other terms of the contract containing such agreement.”

“When Americans sign cell phone agreements, rent an apartment, or accept a contract for a job, most of us focus on the service we are about to receive or that we are about to provide,” Leahy said. “What Americans do not realize—until it is too late—is that too often we are also signing away crucial legal rights. Legal fine print tips the scales against us. It is forcing consumers into private arbitration, denying us of our Constitutional right to protect ourselves in court.”

Praise. The measure immediately garnered praise from the National Employment Lawyers Association: “Introduction of the Restoring Statutory Rights Act affirms that access to the courts by employees to seek resolution of employment disputes is fundamental to achieving fairness and justice in the workplace. Indeed, employees whose workplace rights are violated by their employers should not also be robbed of their day in court by employer-imposed forced arbitration clauses.”

Additional cosponsors of the Restoring Statutory Rights Act include Senators Richard Blumenthal (D-Conn.), Dick Durbin (D-Ill.), and Sheldon Whitehouse (D-R.I.).

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