FAIR Game? What Employers Need to Know About the New Proposed Legislation Banning Mandatory Pre-Dispute Arbitration Agreements

Many of our clients have implemented mandatory employment arbitration programs and believe that they are an efficient and effective way to resolve potential disputes, including putative class-action cases. For years, however, employees and their advocates have pushed to amend the Federal Arbitration Act (FAA) to prohibit mandatory pre-dispute arbitration agreements. Previous proposed bills have failed to gain traction in Congress, but employers should be aware that there is a new momentum behind these efforts.

The FAIR Act

In September 2019, the Forced Arbitration Injustice Repeal Act, or FAIR Act, passed the House. Subsequently, the bill was not brought before the Republican-controlled Senate for a vote. But the makeup of the Senate has shifted, and President Biden has indicated his intent to sign the bill into law if approved by the Senate. Now that the Senate is effectively under Democratic control, it is anticipated that the FAIR Act will be re-presented before both houses of Congress in the near future. There are indications that the legislation may even garner a few Republican votes. Senator Lindsey Graham (R-SC), the chair of the House Judiciary Committee, has shown that he is skeptical of arbitration. Senator Graham has stated: “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.” Others on the House Judiciary Committee, including several Republican lawyers, have expressed similar concerns suggesting that arbitration reform may be an issue that could lead to a bipartisan compromise.

What Would Change

In its current form, the FAIR Act would prohibit mandatory pre-dispute arbitration agreements and class action waivers in employment, consumer, antitrust, and civil rights disputes. Under the bill’s current language, the FAIR Act would apply to “any dispute or claim that arises or accrues” after the date of enactment. At this point it is unclear how courts will define “accrual” of a claim and this is something to watch for if the bill is seriously considered in the future. Passage of the FAIR Act could potentially invalidate current arbitration agreements for any disputes that occur after the law goes into effect.

The Bottom Line

Employers should be aware that the FAIR Act, or a watered-down version of it, may be presented to Congress this session and that enthusiasm for this legislation is probably at an all-time high, at least among Democrats. Should Congress consider and pass a mandatory arbitration ban, employers would need to carefully consider how to handle existing arbitration agreements and the disputes subject to them, as well as to consider alternatives to mandatory pre-dispute arbitration obligations going forward.