A Fair Victory? House Democrats Pass the FAIR Act to Limit Mandatory Arbitration

In 2018, the U.S. Supreme Court issued its landmark decision in Epic Systems Corp. v. Lewis—a decision that upheld the validity of class action waivers in arbitration agreements (discussed in our prior post). Since then, Democrats lobbied to overturn that decision. In 2018, Democrats introduced H.R. 7109, entitled the “Restoring Justice for Workers Act” to outlaw class action waiver provisions in employment contracts. Although that bill died in Congress, Democrats continue to pursue the fight to prohibit “forced” arbitration agreements and class action waivers.

On September 20, 2019, Democrats came one step closer to achieving that goal when the House passed H.R. 1423, also known as the “Forced Arbitration Injustice Repeal Act” (FAIR Act). The House bill passed 225 to 186, with the support of two Republican representatives. Sponsored by Rep. Hank Johnson (D-Ga.), the bill would prevent the enforcement of contract clauses requiring the parties to the contract to arbitrate disputes.

The FAIR Act would amend portions of the Federal Arbitration Act to provide that “no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to an employment dispute, consumer dispute, or civil rights dispute.” The FAIR Act defines a “predispute arbitration agreement” to mean “an agreement to arbitrate a dispute that has not yet arisen at the time of the making of the agreement” and defines a “predispute joint-action waiver” as an agreement “that would prohibit, or waive the right of, one of the parties to the agreement to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum, concerning a dispute that has not yet arisen at the time of the making of the agreement.”

Supporters argue that the bill would provide justice for workers deprived of access to the court system through forced private arbitration. According to Representative Johnson, private arbitration allows corporations to use “secret proceedings” that place their opponents at a disadvantage. As Johnson stated, “[b]ecause the proceeding is secret, the public never learns what happened.” Johnson’s statement seems, in part, to allude to claims of sexual harassment, which have faced increased public scrutiny in the era of the #MeToo Movement. Against this backdrop, supporters of the FAIR Act further argue that the bill would ensure that victims of sexual harassment can pursue their claims in court.

Opponents argue that the bill would create obstacles for workers by forcing them into lengthy, complicated, and expensive court battles. As Representative Debbie Lesko (R-Az) warned during the House floor debates, “the bill would limit use of a much cheaper system for dispute resolution” and open the door to “substantially more class-action abuses.” With only two Republicans voting for the bill in the House, this argument will likely resonate with the Republican-controlled Senate. Thus, while Democrats can celebrate the victory in the House, the odds of securing another victory in the Republican controlled Senate seems unlikely.

Accordingly, California employers are likely able to continue including arbitration agreements in employment contracts. We will continue to monitor this issue and provide updates as it develops.