Skip to Content

House Passes Bill Banning Forced Arbitration

Arbitration Agreement

The Forced Arbitration Injustice Repeal (FAIR) Act just made it through the House of Representatives on September 20th, 2019. The move represents a significant milestone for the American working class.

What Is Forced Arbitration—and How Does It Affect Employees?

Companies typically include mandatory arbitration clauses in employment and consumer contracts. When employees sign these contracts, they often unknowingly forfeit their right to sue their employer in a court of law. They must instead solve disputes through arbitration. Arbitration is a private, informal arrangement allowing the neutral third party (arbitrator) to make a final, legally binding decision without judicial oversight and the right to an appeal.

The FAIR Act would ban this type of clause, returning legal rights to millions of employees throughout the country. It would be particularly empowering for people of color and the #MeToo movement, both of which typically require the assistance of the court system in seeking justice in the workplace.

Why Do Businesses Prefer Arbitration Over the Judicial System?

Employees weren’t always barred from the court system in this way. In the 2001 Supreme Court ruling Circuit City Stores Inc. v. Adams, an employee claimed his co-workers sexually harassed him for being gay, but the Supreme Court decided his employment contract forbade him from settling the dispute outside of arbitration. Since then, mandatory arbitration clauses have become a widespread practice in companies across the country.

Arbitration benefits businesses because:

  • it is less time-consuming;
  • it keeps disputes private, preventing misconduct from becoming a public scandal;
  • the employer chooses the arbitration firm; and
  • arbitrators are statistically likelier than judicial courts to rule in favor of employers.

According to a report by Cornell University, arbitrators are “more likely to rule in favor of businesses that were repeat customers” and “more likely to award less money to their clients’ employees when they found the business at fault.” Considering these factors, it is clear why so many companies have employees sign mandated arbitration agreements at the beginning of their employment.

But employees do not receive such significant benefits. In fact, arbitration poses a serious threat to their welfare, due to the following reasons:

  • Arbitrators aren’t overseen, and aren’t required to have legal training
  • Employees have less time to gather evidence supporting their allegations
  • Employees are often limited to one or two witnesses
  • Employers cannot be forced to share evidence
  • Employers aren’t inclined to agree on large settlements because they’re not facing the threat of a higher jury award

In the bill, legislators explain that “mandatory arbitration undermines the development of public law because there is inadequate transparency and inadequate judicial review of arbitrators’ decisions.” Privatizing the judicial system in this way prevents individuals—particularly those who are already disenfranchised—from obtaining justice.

Legislators have introduced acts attempting to address this issue, including the Mandatory Arbitration Transparency Act, the Ending Forced Arbitration of Sexual Harassment Act, and the Arbitration Fairness Act. The FAIR Act has a great deal of support in the House but has not been put up for debate in the Senate.

For more information about forced arbitration and the FAIR Act, read the full article by Vox. If you are looking to resolve a dispute with your employer, you need an experienced attorney by your side. We represent employees of all demographics and industries, and we look forward to breaking the silence with you. Call Schwartz Perry & Heller LLP at (646) 490-0221 or contact us online to get started.

Share To: