Impact Fund Applauds House Passage of FAIR Act Bill, Limiting Forced Arbitration

David Nahmias, Law Fellow

Forced arbitration provisions have become one of the most prevalent and devious ways for corporations to protect their interests while restricting access to justice.  As we’ve written about before, these clauses in take-it-or-leave-it contracts force workers and consumers to give up their right to file claims in court, including those claims to enforce their rights to a safe and non-discriminatory workplace. Particularly harmful are class action waivers, found in almost one in three mandatory arbitration provisions in employment contracts.  These waivers forbid individuals from banding together through class and collective actions to address systemic workplace violations and secure widespread policy change.

Courts consider arbitration clauses like any contract provision that the employer and employee agreed to. If employee who is bound by an arbitration clause files a legal claim in court against her employer, the court is required to enforce the arbitration clause and send the dispute to arbitration. Even if the terms seem grossly unequal and unfair, under current law the court must generally interpret the contract as written and deem that the employee consented to waive her rights to go to court.

Numerous decisions by the U.S. Supreme Court have catalyzed the spread of forced arbitration provisions. According to the Court, the Federal Arbitration Act of 1925 reflects a “liberal federal policy favoring arbitration agreements.” That federal law now generally governs arbitration, even when the parties are not making federal law claims. The Court has repeatedly made clear that it is Congress’s job to fix any problems with arbitration, not theirs; writing for the majority in Epic Systems v. Lewis, 138 S. Ct. 1612 (2018), Justice Gorsuch observed, “This Court is not free to substitute its preferred economic policies for those chosen by the people’s representatives,” id. at 1632. 

Forced arbitration favors big business and is often in the small print.

And late last month, the U.S. House of Representatives stood up for the people. On September 20, the House passed H.R. 1423, the Forced Arbitration Injustice Repeal (FAIR) Act to amend the nearly century-old Federal Arbitration Act. The bill, sponsored by Rep. Hank Johnson (D-GA), earned the votes of 225 Representatives, including two Republicans. Remington Gregg, an attorney at Public Citizen who has been leading the coalition of organizations that support ending forced arbitration, lauded the bill’s passage. “There may be no more blatant example of how giant corporations rig our economy and political system than the take-it-or-leave-it, fine print language they insert into the consumer, employment and other types of contracts. The U.S. House of Representatives took an historic step toward banning these insidious provisions by passing the FAIR Act.”

The FAIR Act would invalidate any agreements requiring arbitration of employment, consumer, antitrust, or civil rights claims. This means that a court could not order arbitration of any legal claim arising in those contexts; instead, plaintiffs could pursue their cases in court. The bill explicitly outlaws class or collective action waivers, thereby ensuring that group actions can remain powerful mechanisms to achieve justice. Even union workers would not be forced to waive their rights, even if their collective bargaining agreement contains an arbitration provision. 

Read the full letter we sent

A broad coalition of civil, consumer, environmental, and workers’ rights groups have advocated for legislation to limit forced arbitration. The Impact Fund joined 73 organizations in signing a letter to Speaker of the House Nancy Pelosi and Minority Leader Kevin McCarthy advocating for passage of the FAIR Act. 

In the Senate, Senator Richard Blumenthal (D-CT) has sponsored an identical bill (S. 610). Earlier this year, the Senate Judiciary Committee held a hearing on “Arbitration in America,” where Committee Chairman Senator Lindsey Graham (R-SC) expressed some skepticism about forced arbitration. He said, “I believe arbitration has a place in society. I want to be pro-business, but everything that’s good for business may not be the best answer for society,” and he suggested that some reforms, including increased transparency, might be warranted. 

Gregg is cautiously optimistic. “We have no illusions about the challenge ahead. Preserving their forced arbitration get-out-of-jail-free card is a crucial priority of the U.S. Chamber of Commerce and big business,” he said. “They will ratchet up their rhetoric, spending and lobbying, all while continuing to peddle falsehoods about how great forcing people in arbitration is. But people are waking up to how dastardly forced arbitration is. It is only through public mobilization and continued pressure on Congress that, in the not-distant future, the FAIR Act stands a chance of becoming law.”