Arbitration – Winds of Change

Apparently, some public officials and, more importantly, the public are beginning to understand the effects arbitration is having on consumer transactions.  As a result, U.S. Senator Russ Feingold (D-WI) and U.S. Representative Hank Johnson (D-GA) will introduce the Arbitration Fairness Act of 2007, comprehensive legislation to ensure Americans are not forced into mandatory arbitration agreements in employment, consumer, franchise or civil rights disputes.  We hope readers of this blog will contact their representatives to tell them this bill should be supported.  Below is a draft of the proposed bill:

The Arbitration Fairness Act of 2007
Section by Section Analysis 

When Congress enacted the Federal Arbitration Act (“FAA”), its goal was to allow an alternative forum for parties on equal footing to resolve their disputes.  Yet a series of court decisions moved the law away from its original intent and opened the door for arbitration to be used to deprive ordinary citizens in employment, consumer, and franchise disputes of their constitutional right to use the civil justice system.   

The Arbitration Fairness Act of 2007, introduced in the Senate by Sen. Russ Feingold (D-WI) and in the House by Rep. Hank Johnson (D-GA), reflects the FAA’s original intent by requiring that agreements to arbitrate employment, consumer, franchise, or civil rights disputes be made after the dispute has arisen.  The Act does not prohibit arbitration, but it will prevent a party with greater bargaining power from forcing individuals into arbitration through a contract entered into prior to a dispute arising.  It will ensure that citizens have a true choice between arbitration and the traditional civil court system.   

Sec. 1:      Short Title: the “Arbitration Fairness Act of 2007”  

Sec. 2:      Findings:  This section details how the law has moved away from the original intent of the Federal Arbitration Act and has now exposed growing numbers of individual consumers and employees to mandatory arbitration agreements.  It also discusses the ways in which mandatory arbitration systems are skewed in favor of powerful, corporate, repeat players.   

Sec. 3:      Definitions:  This section amends section 1 of the FAA (9 U.S.C. § 1) to include specific definitions of “employment dispute,” “consumer dispute,” and “franchise dispute,” which are covered by the Act.  An employment dispute is any dispute between an employer and employee arising out of the relationship as defined by the Fair Labor Standards Act.  A consumer dispute is a dispute between an individual person who seeks or acquires property, services, money, or credit for non-business purposes and the seller or provider of those goods or services.  A franchise dispute is a dispute between a franchisor and franchisee arising out of or relating to the contract establishing the franchise. 

Sec. 4:      Validity and Enforceability:  This section amends section 2 of the FAA (9 U.S.C. § 2) to establish that agreements to arbitrate employment, consumer, or franchise disputes will not be enforceable if they are entered before the actual dispute arises.  It extends this rule to disputes arising under civil rights statutes and statutes regulating contracts or transactions between parties of unequal bargaining power.  This section also states that disputes as to whether the Act applies shall be resolved by the court, rather than through arbitration.  Finally, the section clarifies that the Act does not apply to collective bargaining agreements. 

Sec. 5:      Effective Date:  The Act shall apply to claims and disputes arising on or after the date of enactment.