Will the FAIR Act Make Employment Arbitration Agreements Extinct?
October 23, 2019 by
When drafting employment agreements we ask our employer clients if they would prefer to include an arbitration clause in the employment agreement. There certainly are pros and cons to an agreed arbitration clause. Arbitration is often more efficient and cost-effective, typically functions with more simplified rules, and far more private. Moreover, the employer is insulated from the risk of a runaway jury. The risks to employers include, but are not limited to an early spike in costs, namely the arbitrator’s fees, and loss of objectivity with one decision-maker. Despite the limited cons, employers almost always select the use of such a clause. However, if the House of Representatives has its way, this analysis could become irrelevant.
Last month the U.S. House of Representatives passed the Forced Arbitration Injustice Repeal Act (“FAIR”)(H.R. 1423), attempting to prohibit arbitration agreements. Under FAIR, employers would be forced to go to court for all employment disputes, rather than resolving them in arbitration. More specifically, the Act seeks to:
- prohibit predispute arbitration agreements that force arbitration of future employment, consumer, antitrust, or civil rights disputes; and
- prohibit agreements and practices that interfere with the right of individuals, workers, and small businesses to participate in a joint, class, or collective action related to an employment, consumer, antitrust, or civil rights dispute.
The Act provides:
Notwithstanding any other provision of this title, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to an employment dispute, consumer dispute, antitrust dispute, or civil rights dispute.
Rep. Hank Johnson (D-GA), the Act’s sponsor, explained, “Forced arbitration agreements undermine our indelible Constitutional right to trial by jury, benefiting powerful businesses at the expense of American consumers and workers.” The problem with this statement, and the FAIR Act, is that it is inconsistent with the already-existent Federal Arbitration Act, which provides for the validity and enforceability of arbitration agreements. See 9 U.S.C. § 2 (1947). Further, many states, including Texas, favor arbitration and presume the agreements are valid. Texas has its own arbitration statute, also favoring enforcement of arbitration agreements. See Tex. Civ. Prac. & Rem. Code Ann. § 171.001 et seq.
Many employers rely on the validity of arbitration provisions in their employment contracts to control the cost of employment litigation. Arbitration provisions have become commonplace in employment agreements, and have even been ruled effective to prevent class or collective action litigation. See, e.g., Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 200 L. Ed. 2d 889 (2018). The timetable for arbitration is often shorter than the time it takes for a case to reach trial in a court, and juries are perceived as more sympathetic to other workers than to employers. Further, arbitration is generally viewed as a way to rein in discovery costs, and prevent runaway jury verdicts. FAIR clearly appears to be congressional backlash against the Lewis decision.
Despite the momentum in the House, employers need not panic. It is widely anticipated that the Senate, controlled by Republicans, will soundly reject the bill. The latest action is that the Senate referred the Act to the Committee on the Judiciary on September 24, 2019. Employers, stay tuned.