[House Report 117-270]
[From the U.S. Government Publishing Office]
117th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 117-270
======================================================================
FORCED ARBITRATION INJUSTICE REPEAL ACT OF 2022
_______
March 11, 2022.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Nadler, from the Committee on the Judiciary,
submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 963]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 963) to amend title 9 of the United States Code with
respect to arbitration, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 3
Background and Need for the Legislation.......................... 4
Hearings......................................................... 13
Committee Consideration.......................................... 14
Committee Votes.................................................. 14
Committee Oversight Findings..................................... 22
Committee Estimate of Budgetary Effects.......................... 22
New Budget Authority and Congressional Budget Office Cost
Estimate....................................................... 22
Duplication of Federal Programs.................................. 22
Performance Goals and Objectives................................. 22
Advisory on Earmarks............................................. 22
Section-by-Section Analysis...................................... 22
Changes in Existing Law Made by the Bill, as Reported............ 24
Minority Views................................................... 27
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Forced Arbitration Injustice Repeal
Act of 2022'' or the ``FAIR Act of 2022''.
SEC. 2. PURPOSES.
The purposes of this Act are to--
(1) prohibit predispute arbitration agreements that force
arbitration of future employment, consumer, antitrust, or civil
rights disputes; and
(2) 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.
SEC. 3. ARBITRATION OF EMPLOYMENT, CONSUMER, ANTITRUST, AND CIVIL
RIGHTS DISPUTES.
(a) In General.--Title 9 of the United States Code is amended by
adding at the end the following:
``CHAPTER 5--ARBITRATION OF EMPLOYMENT, CONSUMER, ANTITRUST, AND CIVIL
RIGHTS DISPUTES
``Sec.
``501. Definitions.
``502. No validity or enforceability.
``Sec. 501. Definitions
``In this chapter--
``(1) the term `antitrust dispute' means a dispute--
``(A) arising from an alleged violation of the
antitrust laws (as defined in subsection (a) of the
first section of the Clayton Act) or State antitrust
laws; and
``(B) in which the plaintiffs seek certification as a
class under rule 23 of the Federal Rules of Civil
Procedure or a comparable rule or provision of State
law;
``(2) the term `civil rights dispute' means a dispute--
``(A) arising from an alleged violation of--
``(i) the Constitution of the United States
or the constitution of a State;
``(ii) any Federal, State, or local law that
prohibits discrimination on the basis of race,
sex, age, gender identity, sexual orientation,
disability, religion, national origin, or any
legally protected status in education,
employment, credit, housing, public
accommodations and facilities, voting, veterans
or servicemembers, health care, or a program
funded or conducted by the Federal Government
or State government, including any law referred
to or described in section 62(e) of the
Internal Revenue Code of 1986, including parts
of such law not explicitly referenced in such
section but that relate to protecting
individuals on any such basis; and
``(B) in which at least one party alleging a
violation described in subparagraph (A) is one or more
individuals (or their authorized representative),
including one or more individuals seeking certification
as a class under rule 23 of the Federal Rules of Civil
Procedure or a comparable rule or provision of State
law;
``(3) the term `consumer dispute' means a dispute between--
``(A) one or more individuals who seek or acquire
real or personal property, services (including services
related to digital technology), securities or other
investments, money, or credit for personal, family, or
household purposes including an individual or
individuals who seek certification as a class under
rule 23 of the Federal Rules of Civil Procedure or a
comparable rule or provision of State law; and
``(B)(i) the seller or provider of such property,
services, securities or other investments, money, or
credit; or
``(ii) a third party involved in the selling,
providing of, payment for, receipt or use of
information about, or other relationship to any such
property, services, securities or other investments,
money, or credit;
``(4) the term `employment dispute' means a dispute between
one or more individuals (or their authorized representative)
and a person arising out of or related to the work relationship
or prospective work relationship between them, including a
dispute regarding the terms of or payment for, advertising of,
recruiting for, referring of, arranging for, or discipline or
discharge in connection with, such work, regardless of whether
the individual is or would be classified as an employee or an
independent contractor with respect to such work, and including
a dispute arising under any law referred to or described in
section 62(e) of the Internal Revenue Code of 1986, including
parts of such law not explicitly referenced in such section but
that relate to protecting individuals on any such basis, and
including a dispute in which an individual or individuals seek
certification as a class under rule 23 of the Federal Rules of
Civil Procedure or as a collective action under section 16(b)
of the Fair Labor Standards Act, or a comparable rule or
provision of State law;
``(5) the term `predispute arbitration agreement' means an
agreement to arbitrate a dispute that has not yet arisen at the
time of the making of the agreement; and
``(6) the term `predispute joint-action waiver' means an
agreement, whether or not part of a predispute arbitration
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.
``Sec. 502. No validity or enforceability
``(a) In General.--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.
``(b) Applicability.--
``(1) In general.--An issue as to whether this chapter
applies with respect to a dispute shall be determined under
Federal law. The applicability of this chapter to an agreement
to arbitrate and the validity and enforceability of an
agreement to which this chapter applies shall be determined by
a court, rather than an arbitrator, irrespective of whether the
party resisting arbitration challenges the arbitration
agreement specifically or in conjunction with other terms of
the contract containing such agreement, and irrespective of
whether the agreement purports to delegate such determinations
to an arbitrator.
``(2) Collective bargaining agreements.--Nothing in this
chapter shall apply to any arbitration provision in a contract
between an employer and a labor organization or between labor
organizations, except that no such arbitration provision shall
have the effect of waiving the right of a worker to seek
judicial enforcement of a right arising under a provision of
the Constitution of the United States, a State constitution, or
a Federal or State statute, or public policy arising
therefrom.''.
(b) Technical and Conforming Amendments.--
(1) In general.--Title 9 of the United States Code is
amended--
(A) in section 1 by striking ``of seamen,'' and all
that follows through ``interstate commerce'' and
inserting in its place ``of individuals, regardless of
whether such individuals are designated as employees or
independent contractors for other purposes'';
(B) in section 2 by striking ``chapter 4'' and
inserting ``chapter 4 or 5'';
(C) in section 208 by striking ``chapter 4'' and
inserting ``chapter 4 or 5''; and
(D) in section 307 by striking ``chapter 4'' and
inserting ``chapter 4 or 5''.
(2) Table of chapters.--The table of chapters of title 9 of
the United States Code is amended by adding at the end the
following:
``5. Arbitration of Employment, Consumer, Antitrust, and 501''.
Civil Rights Disputes.
SEC. 4. EFFECTIVE DATE.
This Act, and the amendments made by this Act, shall take effect on
the date of enactment of this Act and shall apply with respect to any
dispute or claim that arises or accrues on or after such date.
SEC. 5. RULE OF CONSTRUCTION.
Nothing in this Act, or the amendments made by this Act, shall be
construed to prohibit the use of arbitration on a voluntary basis after
the dispute arises.
Purpose and Summary
H.R. 963, the ``Forced Arbitration Injustice Repeal Act of
2022'' or the ``FAIR Act of 2022,'' would prohibit the
enforcement of mandatory, pre-dispute arbitration (``forced
arbitration'') provisions in contracts involving consumer,
employment, antitrust, and civil rights disputes. This
critically important measure would restore access to justice
for millions of Americans who are currently locked out of the
court system and are forced to settle their disputes against
companies in a private system of arbitration that often favors
the company over the individual. H.R. 963 is supported by a
broad coalition of public interest and advocacy organizations,
including Public Citizen, Consumer Reports, the American
Association for Justice, and the Leadership Conference on Civil
and Human Rights.\1\
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\1\Letter from Remington Gregg, Couns., Pub. Citizen, et al., to
Hon. Jerrold Nadler, Chairman, H. Comm. on the Judiciary & Hon. Jim
Jordan, Ranking Member, H. Comm. on the Judiciary (Oct. 27, 2021),
https://docs.house.gov/meetings/JU/JU00/20211103/114212/HMKP-117-JU00-
20211103-SD004.pdf.
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Background and Need for the Legislation
Over the past several decades, forced arbitration clauses
have become virtually ubiquitous in everyday contracts.\2\
Often buried deep within the fine print of employment and
consumer contracts, forced arbitration deprives millions of
Americans of their day in court to enforce state and federal
rights.\3\ Because arbitration lacks the transparency and
precedential guidance of the justice system, there is no
guarantee that the relevant law will be applied to these
disputes or that fundamental notions of fairness and equity
will be upheld in the process.\4\
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\2\Jessica Silver-Greenberg & Robert Gebeloff, Arbitration
Everywhere, Stacking Deck of Justice, N.Y. Times (Nov. 1, 2015),
https://nyti.ms/2k6cZ1z (``By inserting individual arbitration clauses
into a soaring number of consumer and employment contracts, companies .
. . devised a way to circumvent the courts and bar people from joining
together in class-action lawsuits, realistically the only tool citizens
have to fight illegal or deceitful business practices.'').
\3\Consumer Fin. Prot. Bureau, Arbitration Study Rep. to Cong.,
pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act
Sec. 1028(a) (2015), http://files.consumerfinance.gov/f/
201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
\4\See, e.g., Myriam Gilles, The Day Doctrine Died: Private
Arbitration and the End of Law, 2016 U. Ill. L. Rev. 371 (2016).
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Unlike the judicial system--in which courts' decisions are
generally public and, by building on precedent, cumulatively
create a body of law--the results of arbitration disputes are
often kept secret.\5\ For example, the arbitration protocols
for the American Arbitration Association state that arbitrators
of consumer disputes must ``maintain the privacy of the hearing
to the extent permitted by applicable law.''\6\
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\5\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 3-4 (2019) (statement of Gretchen Carlson;
statement of Professor Myriam Gilles, Paul R. Verkuil Chair in Pub.
Law, Benjamin N. Cardozo Sch. of Law, at 10).
\6\Consumer Due Process Protocol, Principle 12.2, Am. Arbitration
Ass'n, https://www.adr.org/sites/default/files/document_repository/
Consumer&fxsp0;%20Due&fxsp0;%20Process&fxsp0;%20
Protocol&fxsp0;%20(1).pdf.
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Forced arbitration also lacks many of the procedural
safeguards of the justice system.\7\ For example, in forced
arbitration, a company may increase the expense of bringing a
claim,\8\ limit discovery,\9\ or eliminate protections related
to the geographic proximity of the resolution forum,\10\ formal
civil procedure rules, access to counsel,\11\ and the right to
bring similar claims jointly.\12\ Additionally, the company
imposing arbitration often selects the presiding arbitrator or
arbitration provider,\13\ creating a conflict of interest in
which the purportedly neutral arbitrator may be motivated by
the prospect of obtaining repeat business from the company
rather than focused on fairly assessing the claim.\14\
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\7\Id.
\8\Arbitration clauses may impose high costs on consumers, such as
requiring travel to a distant forum or selection of a high-fee
arbitrator--possible expenses which a plaintiff filing in a local court
would not have to incur. See Lisa B. Bingham, Control over Dispute-
System Design and Mandatory Commercial Arbitration, 67 Law & Contemp.
Probs. 221, 234-35 (July 31, 2004).
\9\See Katherine Palm, Note, Arbitration Clauses in Nursing Home
Admission Agreements: Framing the Debate, 14 Elder L.J. 453, 478 n.172
(2006).
\10\See Ziva Branstetter, Nursing Home Policy Challenged, Tulsa
World (Mar. 4, 2002), https://www.tulsaworld.com/archives/nursing-home-
policy-challenged/article_6131212f-481c-59c4-af51-
7c2a188&fxsp0;e37f9.html (Oklahoma nursing home's arbitration clause
requires residents to travel to New Mexico at their own expense for
arbitration proceeding).
\11\The lower probability of victory and legal fees may discourage
some attorneys from representing individuals in arbitration
proceedings. See Charles L. Knapp, Taking Contracts Private: The Quiet
Revolution in Contract Law, 71 Fordham L. Rev. 761, 783-84 (2002).
\12\See Jean R. Sternlight, As Mandatory Binding Arbitration Meets
the Class Action, Will the Class Action Survive?, 42 Wm. & Mary L. Rev.
1, 6 (2000).
\13\The major arbitration providers include the American
Arbitration Association and JAMS, which set their own procedures,
contract with agencies and companies to arbitrate future disputes, and
provide arbitrators and panels to hear disputes. Katherine V.W. Stone &
Alexander J.S. Colvin, Econ. Policy Inst., The Arbitration Epidemic:
Mandatory Arbitration Deprives Workers and Consumers of Their Rights 17
(EPI Briefing Paper No. 414, 2015), https://www.epi.org/publication/
the-arbitration-epidemic/.
\14\See Carrie Menkel-Meadow, Do the ``Haves'' Come Out Ahead in
Alternative Judicial Systems?: Repeat Players in ADR, 15 Ohio St. J. on
Disp. Resol. 19, 35-37 (1999).
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As a result of the decline of enforcement of state and
federal statutory protections, forced arbitration makes it more
likely that corporate harms and abuse will go unchallenged. As
Professor Myriam Gilles testified last Congress, many
companies' arbitration clauses specifically identify federal
protections that arbitration make unenforceable in court, such
as rights under the Civil Rights Act of 1964 and the Family
Medical Leave Act.\15\ In this respect, as Professor Gilles
observes, ``forced arbitration is not an alternative regime for
resolving claims, it is a means of suppressing legal claims
altogether.''\16\ Judge William G. Young, who was appointed by
President Ronald Reagan, likewise stated that the proliferation
of forced arbitration clauses means that ``business has a good
chance of opting out of the legal system altogether and
misbehaving without reproach.''\17\ Deepak Gupta, a leading
public interest attorney, similarly testified that forced
arbitration has undermined the enforcement of statutory
rights.\18\ He explained:
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\15\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 7 (2019) (statement of Myriam Gilles, Paul R.
Verkuil Chair in Pub. Law, Benjamin N. Cardozo Sch. of Law).
\16\Arbitration in America: Hearing Before the S. Comm. on the
Judiciary, 116th Cong. 1 (2019) (Responses to Questions for the Record
of Professor Myriam Gilles, Paul R. Verkuil Chair in Pub. Law, Benjamin
N. Cardozo Sch. of Law).
\17\Jessica Silver-Greenberg & Robert Gebeloff, Arbitration
Everywhere, Stacking Deck of Justice, N.Y. Times (Oct. 31, 2015),
https://nyti.ms/2k6cZ1z (``By inserting individual arbitration clauses
into a soaring number of consumer and employment contracts, companies .
. . devised a way to circumvent the courts and bar people from joining
together in class-action lawsuits, realistically the only tool citizens
have to fight illegal or deceitful business practices.'').
\18\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 2 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
As the U.S. Supreme Court has itself acknowledged,
the presence of a forced arbitration clause often means
that Americans will have no effective method of
asserting their rights or getting justice under federal
laws that could otherwise have been enforced in a
court--consumer protection or antitrust laws, for
example, or prohibitions on sex or race discrimination.
If Congress passes laws that can't be enforced in the
real world, what good are those laws?\19\
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\19\Id.
Although proponents claim that arbitration decreases
litigation costs for consumers, consumers often do not receive
any benefit of reduced costs through forced arbitration.\20\
Instead, arbitration clauses appear to dissuade consumers from
adjudicating disputes altogether.\21\ Moreover, the lower
probability of victory and the meager legal fees associated
with forced arbitration may also discourage attorneys from
representing individuals in arbitration proceedings.\22\ As
Justice Stephen G. Breyer explained:
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\20\Consumer Fin. Prot. Bureau, Arbitration Study Rep. to Cong.,
pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act
Sec. 1028(a), at Sec. 10 (2015), http://files.consumerfinance.gov/f/
201503_cfpb_arbitration-study-report-to-congress-2015.pdf (``Using two
measures of credit offered, we did not find any statistically
significant evidence that companies that eliminated arbitration
provisions reduced the credit they offered.'').
\21\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 3-4 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\22\See Charles L. Knapp, Taking Contracts Private: The Quiet
Revolution in Contract Law, 71 Fordham L. Rev. 761, 783-84 (2002).
What rational lawyer would have signed on to
represent the [plaintiffs] in litigation for the
possibility of fees stemming from a $30.22 claim . . .
? The realistic alternative to a class action is not 17
million individual suits, but zero individual suits, as
only a lunatic or a fanatic sues for $30.\23\
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\23\AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 365 (2011)
(Breyer, J. dissenting).
Supporters of forced arbitration also argue that doing away
with it would lead to more class action lawsuits, the costs of
which would ultimately be passed onto consumers.\24\ For
example, Alan Kaplinsky, a senior counsel and former Practice
Leader of the Consumer Financial Services Group at Ballard
Spahr LLP, who testified before the Senate Judiciary Committee
on April 2, 2019,\25\ cited a Consumer Financial Protection
Bureau (CFPB) study estimating that a proposed rule limiting
arbitration clauses would cost financial services providers
between $2.62 and $5.23 billion over a five-year period.\26\
Professor Gilles, however, rejected this concern, noting that
large companies that do not use forced arbitration in their
consumer contracts--such as Capital One and Bank of America--
have not experienced significant upticks in litigation.\27\
Furthermore, businesses concerned with additional liability
risk could address this concern by adhering to state and
federal law.
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\24\Alan S. Kaplinsky & Mark J. Levin, The CFPB's Final Arbitration
Rule Run Amok, The Reg. Rev. (Sept. 11, 2017), https://
www.theregreview.org/2017/09/11/kaplinsky-levin-cfpb-arbitration-rule/.
\25\Arbitration in America: Hearing Before the S. Comm on the
Judiciary, 116th Cong. 6 (2019) (statement of Alan S. Kaplinsky,
Partner, Ballard Spahr LLP).
\26\Id. at 4.
\27\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 11 n.59 (2019) (statement of Professor Myriam
Gilles, Paul R. Verkuil Chair in Pub. Law, Benjamin N. Cardozo Sch. of
Law).
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In sum, forced arbitration has transferred the rights of
workers and consumers to a secretive, closed, and private
system designed by corporate interests to evade oversight and
accountability.\28\ Unsurprisingly, 84% of Americans across the
political spectrum support ending forced arbitration in
employment and consumer disputes.\29\
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\28\Jessica Silver-Greenberg & Robert Gebeloff, In Arbitration, A
`Privatization of the Justice System,' N.Y. Times (Nov. 1, 2015),
https://www.nytimes.com/2015/11/02/business/dealbook/in-arbitration-a-
privatization-of-the-justice-system.html.
\29\See Guy Molyneux & Geoff Garin, National Survey on Required
Arbitration, Hart Research Assocs. (Feb. 28, 2019), https://
www.justice.org/sites/default/files/2.28.19%20
Hart%20poll&fxsp0;%20memo.pdf. &fxsp0;
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I. RECENT CASE LAW IGNORES THE LEGISLATIVE INTENT OF THE FEDERAL
ARBITRATION ACT
On February 12, 1925, Congress codified the use of
arbitration through the Federal Arbitration Act (FAA).\30\ The
FAA was adopted to put arbitration agreements on equal footing
with other contracts in certain disputes.\31\ The legislative
history of the FAA suggests that the law was intended to
narrowly apply to disputes between merchants, not between a
business and its consumers or workers.\32\ In 1967, the Supreme
Court characterized the FAA as ``plainly designed'' to include
protections against ``captive customers or employees.''\33\ The
Court noted that it was clear from congressional debate on the
Act that Congress did not intend for parties with unequal
bargaining power to be forced to arbitrate claims on a ``take-
it-or-leave-it basis'':
\30\Pub. L. No. 68-401, 43 Stat. 883 (1925) (codified at 9 U.S.C.
Sec. Sec. 1-16 (2019).
\31\H.R. Rep. No. 68-96, at 1 (1924) (``The purpose of this bill is
to make valid and enforcible [sic] agreements for arbitration . . . in
the Federal courts.'').
\32\See, e.g., H.R. Rep No. 68-96, at 1 (1924); Christopher R.
Leslie, The Arbitration Bootstrap, 94 Tex. L. Rev. 265, 305 (2015)
(``The most important fact about the testimony, hearings, and reports
leading up to congressional enactment of the FAA is that every witness,
every Senator, and every Representative discussed one issue and one
issue only: arbitration of contract disputes between merchants.'').
\33\Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,
414 (1967).
On several occasions [Members of Congress] expressed
opposition to a law which would enforce even a valid
arbitration provision contained in a contract between
parties of unequal bargaining power. Senator Walsh
cited insurance, employment, construction, and shipping
contracts as routinely containing arbitration clauses
and being offered on a take-it-or-leave-it basis to
captive customers or employees. He noted that such
contracts ``are really not voluntarily (sic) things at
all'' because ``there is nothing for the man to do
except to sign it; and then he surrenders his right to
have his case tried by the court.'' He was emphatically
assured by the supporters of the bill that it was not
their intention to cover such cases.\34\
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\34\Id. (quoting Sales and Contracts to Sell in Interstate and
Foreign Commerce, and Federal Commercial Arbitration: Hearing on S.
4213 and S. 4214 Before the Subcomm. of the S. Comm. on the Judiciary,
67th Cong. 6 (1923) [hereinafter 1923 Hearing on S. 4213 and S. 4214]
(statement of Senator Walsh)).
Furthermore, the Court emphasized that not only was the Act
intended to apply only to merchant disputes, but it was also
intended to narrowly apply to ``simpler questions of law''
involving the routine performance of contracts, such as the
passage of title or the existence of warranties.\35\
Arbitration would not resolve questions of statutory law, which
would remain within the clear purview of courts.
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\35\Prima Paint Corp., 388 U.S. at 415 n.13 (quoting Julius Henry
Cohen & Kenneth Dayton, The New Federal Arbitration Law, 12 Va. L. Rev.
265, 281 (1926)).
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Indeed, the drafters of the FAA had made clear that
arbitration was not appropriate for substantive questions of
law. Julius Henry Cohen, the law's architect, emphasized that
it was ``not the proper method for deciding points of law of
major importance involving constitutional questions or policy
in the application of statutes.''\36\ Arbitration was also
rarely invoked in state courts because it was widely considered
not to preempt state law.\37\ This consensus was supported by
the FAA's legislative history. During hearings on the measure,
Cohen testified that ``there is no disposition therefore by
means of the Federal bludgeon to force an individual State into
an unwilling submission to arbitration enforcement.''\38\
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\36\Andrea Cann Chandrasekher & David Horton, Arbitration Nation:
Data from Four Providers, 107 Cal. L. Rev. 1, 11 n.67 (2019) (quoting
Julius Henry Cohen & Kenneth Dayton, The New Federal Arbitration Law,
12 Va. L. Rev. 265, 281 (1926)).
\37\David Horton, The Federal Arbitration Act and Testamentary
Instruments, 90 N.C. L. Rev. 1027, 1039 (2012).
\38\Id. at 1039 n.55 (citing Arbitration of Interstate Commercial
Disputes: Joint Hearings on S. 1005 and H.R. 646 Before the Subcomms.
of the Comms. on the Judiciary, 68th Cong. 40 (1924)).
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In a series of decisions beginning in the 1980s,\39\
however, the Supreme Court drastically expanded the
applicability of the FAA to arbitration clauses in everyday
contracts, ``push[ing] arbitration into the mainstream.''\40\
The Court has upheld the enforcement of arbitration clauses
even when doing so prevents an individual from vindicating a
state or federal statutory right.\41\ Furthermore, by imposing
arbitration on a ``take-it-or-leave-it'' basis, large companies
have eviscerated the congressional intent of arbitration as a
voluntary process agreed to between parties of equal bargaining
power.\42\
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\39\See, e.g., Moses H. Cone Mem'l Hosp. v. Mercury Constr., 460
U.S. 1 (1983); Justice Denied: Forced Arbitration and the Erosion of
Our Legal System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before
the Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm.
On the Judiciary, 116th Cong. 25-29 (2019) (statement of Deepak Gupta,
Founding Principal, Gupta Wessler PLLC).
\40\Andrea Cann Chandrasekher & David Horton, Arbitration Nation:
Data from Four Providers, 107 Cal. L. Rev. 1, 12 (2019).
\41\See, e.g., Preston v. Ferrer, 552 U.S. 346, 349 (2008) (``When
parties agree to arbitrate all questions arising under a contract, the
[Federal Arbitration Act] supersedes state laws . . . .''); Allied-
Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995); Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20 (1991).
\42\During the passage of the Federal Arbitration Act, Congress did
not even intend to allow binding arbitration agreements on individuals
if the contracts were between parties of unequal bargaining power.
Prima Paint Corp., 388 U.S. at 414 (1967) (Black, J., dissenting)
(citing 1923 Hearing on S. 4213 and S. 4214).
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With respect to labor unions, the Supreme Court held in
Epic Systems Corp. v. Lewis that the National Labor Relations
Act (NLRA), which guarantees workers the right to organize
unions and utilize collective bargaining, does not reflect a
clearly expressed congressional intent to displace the FAA and
to prohibit class and collective action waivers.\43\ The Court
held that arbitration agreements must be enforced as written,
and that ``[w]hile Congress is of course always free to amend
this judgment, we see nothing suggesting it did so in the
NLRA.''\44\ Justice Ginsburg, in a dissent joined by Justices
Breyer, Sotomayor, and Kagan, said the majority was
``egregiously wrong,'' and noted that the decision
``subordinates employee-protective labor legislation to the
Arbitration Act . . . . Congress, when it enacted the NLRA,
likely meant to protect employees' joining together to engage
in collective litigation.''\45\
---------------------------------------------------------------------------
\43\Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1622-25 (2018).
\44\Id. at 1632.
\45\Id. at 1633, 1641 (Ginsburg, J., dissenting).
---------------------------------------------------------------------------
II. FORCED ARBITRATION UNDERMINES THE RIGHTS OF CONSUMERS
Forced arbitration is now widespread in consumer
contracts.\46\ In many cases, consumers are unaware of forced
arbitration clauses in the contracts of commonly used goods and
services.\47\ These clauses are sometimes hidden inside of
envelopes,\48\ delivery boxes,\49\ and privacy policies.\50\
Because nearly 90% of mobile phone services contain a forced
arbitration clause, it is virtually impossible to avoid them
and still use a mobile phone.\51\ This is also true for many
financial services and products, such as student loans and
credit cards.\52\ As a result, if the consumer wants to use the
service or product, accepting the arbitration clause is
mandatory.\53\
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\46\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 1-2 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\47\See Wash. Mut. Fin. Grp. v. Bailey, 364 F.3d 260, 264-66 (5th
Cir. 2004) (holding that an arbitration agreement was enforceable
against illiterate consumers, even though they had no knowledge of the
arbitration requirement); Am. Gen. Fin. Servs., Inc. v. Griffin, 327 F.
Supp. 2d 678, 683 (N.D. Miss. 2004) (upholding arbitration agreement
even though blind consumer had no knowledge of agreement); Marsh v.
First USA Bank, N.A., 103 F. Supp. 2d 909, 916-18 (N.D. Tex. 2000)
(finding that inserting an arbitration clause in monthly billing
statements constituted sufficient notice).
\48\See Ting v. AT&T, 319 F.3d 1126, 1134 (9th Cir. 2003).
\49\See Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148 (7th Cir.
1997).
\50\See Stephanie Strom, When `Liking' a Brand Online Voids the
Right to Sue, N.Y. Times (Apr. 16, 2014), https://www.nytimes.com/2014/
04/17/business/when-liking-a-brand-online-voids-the-right-to-sue.html.
\51\Brian Hardingham, The FCC Should Stop Cell Phone Giants from
Using Forced Arbitration Clauses as a Get out of Jail Free Card, Pub.
Justice: Blog (Jan. 13, 2017), https://www.publicjustice.net/fcc-stop-
cell-phone-giants-using-forced-arbitration-clauses-get-jail-free-card/.
\52\Credit Card Practices: Fees, Interest Rates, and Grace Periods:
Hearing Before the Permanent Subcomm. on Investigations of the S. Comm.
on Homeland Sec. and Governmental Affairs, 110th Cong. (2007)
(statement of Alys Cohen, Staff Att'y, Nat'l Consumer Law Ctr.).
\53\Critics of arbitration label it ``mandatory,'' ``compelled,''
or even ``cram down'' arbitration. See, e.g., Carrie Menkel-Meadow, Do
the ``Haves'' Come Out Ahead in Alternative Judicial Systems?: Repeat
Players in ADR, 15 Ohio St. J. on Disp. Resol. 19, 39 (1999).; David S.
Schwartz, Enforcing Small Print to Protect Big Business: Employee and
Consumer Rights Claims in an Age of Compelled Arbitration, 1997 Wis. L.
Rev. 33 (1997); Jean R. Sternlight, Panacea or Corporate Tool?:
Debunking the Supreme Court's Preference for Binding Arbitration, 74
Wash. U. L.Q. 637, 638 (1996).
---------------------------------------------------------------------------
In 2015, the CFPB released a congressionally-mandated study
on forced arbitration in financial products and services.\54\
The study, which is the most comprehensive empirical study of
arbitration to date,\55\ found ``[n]o evidence of arbitration
clauses leading to lower prices for consumers.''\56\ Instead,
the CFPB found that arbitration has undermined the ability of
consumers to seek redress for abusive, anti-consumer
practices.\57\ Richard Cordray, then-Director of the CFPB,
explained that based on this research, the CFPB had concluded
that ``any prospect of meaningful relief for groups of
consumers is effectively extinguished by forcing them to fight
their legal disputes as lone individuals.''\58\ As he stated,
in recent years ``many businesses have sought to use
arbitration clauses not simply as an alternative means of
resolving disputes, but effectively to insulate themselves from
accountability by blocking group claims,'' exceeding the
original purpose of the Federal Arbitration Act.\59\
---------------------------------------------------------------------------
\54\Consumer Fin. Prot. Bureau, Arbitration Study Rep. to Cong.,
pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act
Sec. 1028(a) (2015), http://files.consumerfinance.gov/f/
201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
\55\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 15 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\56\Consumer Fin. Prot. Bureau, Factsheet, Consumer Financial
Protection Bureau Study Finds that Arbitration Agreements Limit Relief
for Consumers 3 (Mar. 10, 2015), https://files.consumerfinance.gov/f/
201503_cfpb_factsheet_arbitration-study.pdf.
\57\Id. at 2.
\58\Richard Cordray, Dir., Consumer Fin. Prot. Bureau, Remarks at
Field Hearing on Arbitration Clauses (May 5, 2016), https://
www.consumerfinance.gov/about-us/newsroom/prepared-remarks-cfpb-
director-richard-cordray-field-hearing-arbitration-clauses/.
\59\Id.
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Heidi Shierholz, president of the Economic Policy
Institute, notes that ``not only do companies win the
overwhelming majority of claims when consumers are forced into
arbitration--they win big.''\60\ Strikingly, in arbitration
involving financial institutions, ``[b]ecause consumers win so
rarely, the average consumer ends up paying financial
institutions in arbitration--a whopping $7,725.''\61\
---------------------------------------------------------------------------
\60\Heidi Shierholz, Econ. Policy Inst., Forced Arbitration is Bad
for Consumers (2017), https://www.epi.org/publication/forced-
arbitration-is-bad-for-consumers/.
\61\Id.
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III. FORCED ARBITRATION DEPRIVES EMPLOYEES OF FUNDAMENTAL PROTECTIONS
According to a 2017 report by the Economic Policy
Institute, 60.1 million workers--the majority of non-union
employees in the private sector--have signed away their rights
through forced arbitration clauses.\62\ As this report notes,
this trend has ``weakened the position of workers whose rights
are violated, barring access to the courts for all types of
legal claims, including those based on Title VII of the Civil
Rights Act, the Americans with Disabilities Act, the Family and
Medical Leave Act, and the Fair Labor Standards Act.''\63\
---------------------------------------------------------------------------
\62\Alexander J.S. Colvin, Econ. Policy Inst., The Growing Use of
Mandatory Arbitration 2 (2017), https://www.epi.org/files/pdf/
135056.pdf.
\63\Id. at 1.
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When employees work under forced arbitration clauses, they
are less likely to win in disputes with their employers,\64\ or
even to bring them at all.\65\ Workers that do enforce their
rights in the workplace receive less in damages in arbitration
than would have been available in court.\66\
---------------------------------------------------------------------------
\64\Id. at 3.
\65\Id. at 5-6.
\66\Id.
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IV. FORCED ARBITRATION DEPRIVES AMERICANS OF THEIR CIVIL RIGHTS
According to an analysis of corporate legal settlements of
civil rights complaints, U.S. corporations have paid more than
$2.7 billion since 2000,\67\ although the cases that reach
settlement may only represent ``the tip of [the] iceberg of
corporate abuses.''\68\ Many victims of civil rights violations
are unable to pursue their claims in court due to forced
arbitration provisions imposed on them as a condition of
employment or for using everyday goods and services.\69\ The
Leadership Conference on Civil and Human Rights, a coalition
representing more than 200 civil rights groups,\70\ explains:
---------------------------------------------------------------------------
\67\Michelle Chen, Corporations Have Paid Out at Least $2.7 Billion
in Civil-Rights and Labor Lawsuits Since 2000, The Nation (Feb. 1,
2019), https://www.thenation.com/article/corporations-lawsuits-civil-
rights/ (citing Philip Mattera, Good Jobs First, Big Business Bias:
Employment Discrimination and Sexual Harassment at Large Corporations
(2019), https://www.goodjobsfirst.org/sites/default/files/docs/pdfs/
BigBusinessBias.pdf).
\68\Id.
\69\Heidi Shierholz, Econ. Policy Inst, Forced Arbitration is Bad
for Consumers (2017), https://www.epi.org/publication/forced-
arbitration-is-bad-for-consumers/.
\70\Our Common Purpose, Leadership Conf. on Civil & Human Rights
(last visited on Mar. 7, 2021), https://civilrights.org/about/the-
coalition/.
Civil and human rights are especially vulnerable to
the dangerous impact of forced arbitration. Forced
arbitration clauses often preclude consumers and
employees joining together to form a class action to
enforce their civil rights, which results in claim
suppression. Moreover, forced arbitration does not
allow public scrutiny of alleged discrimination, nor
does it allow for the creation of judicial opinions
that help develop the law and provide further guidance
on emerging trends. As a result, landmark civil rights
laws such as those protecting employees from race,
gender, and age discrimination have been rendered
meaningless.\71\
---------------------------------------------------------------------------
\71\Letter from Leadership Conf. on Civil & Human Rights to U.S.
Senators (Feb. 3, 2016), http://civilrightsdocs.info/pdf/Arbitration-
Letter.pdf.
In addition to precluding the enforcement of the civil
rights laws, the opacity of forced arbitration prevents others
from learning of widespread misconduct. As Terri Gerstein, the
Director of the State and Local Enforcement Project at the
Harvard Law School Labor and Worklife Program, noted, the
secretive nature of arbitration ``has allowed outrageous
violations, in some cases years of sexual harassment and
predation, to remain hidden from view and therefore to
continue.''\72\
---------------------------------------------------------------------------
\72\Terri Gerstein, Forced Arbitration is Unjust and Deeply
Unpopular. Can Congress End It?, Slate (Mar. 1, 2019), https://
slate.com/news-and-politics/2019/03/congress-forced-arbitration-fair-
act.html.
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V. FORCED ARBITRATION UNDERMINES THE ENFORCEMENT OF THE ANTITRUST LAWS
Forced arbitration clauses have also undermined the
enforcement of the antitrust laws.\73\ As Deepak Gupta noted
during the ACAL Subcommittee's hearing on forced arbitration
last Congress, ``[t]roublingly, firms that possess monopoly
power can enact a sort of `double punch' by imposing
arbitration terms that insulate their abuse of that same
power.''\74\ In 2013, the Supreme Court dictated this result in
American Express Co. v. Italian Colors Restaurant.\75\ In that
case, a small but successful restaurant in Oakland, California
banded with fellow merchants in a class-action lawsuit to
challenge the alleged anticompetitive conduct of American
Express, including its exorbitantly high and hidden fees--as
much as 30% more than other card companies.\76\ The small
businesses alleged that American Express' conduct violated
Section 1 of the Sherman Act.\77\ In response, American Express
moved to compel individual arbitration under the Federal
Arbitration Act.\78\
---------------------------------------------------------------------------
\73\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 21 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\74\Id. at 20.
\75\Am. Express. Co. v. Italian Colors Rest., 570 U.S. 228, 231
(2013) (holding that the Federal Arbitration Act compels the
enforcement of a contractual waiver of a plaintiff's claim under a
federal statute).
\76\Luke Tsai, Supreme Court Rules Against Oakland Restaurant in
AmEx Suit, East Bay Express (June 25, 2013), https://
www.eastbayexpress.com/WhatTheFork/archives/2013/06/25/supreme-court-
rules-against-oakland-restaurant-in-amex-suit.
\77\Italian Colors Rest., 570 U.S. at 231.
\78\Id.
---------------------------------------------------------------------------
Notwithstanding the establishment of a private right of
action in the Clayton Act, the Court held that the Federal
Arbitration Act required the arbitration of claims under the
antitrust laws.\79\ As the Court noted, the antitrust laws do
not ```evince an intention to preclude a waiver' of class-
action procedure.''\80\ Justice Elena Kagan, in a dissent
joined by Justices Ginsburg and Breyer, warned that the
majority's interpretation of the FAA allows the monopolist ``to
use its monopoly power to insist on a contract effectively
depriving its victims of all legal recourse.''\81\ As she
explained, the Court's decision would have sweeping
ramifications for the vindication of rights established by
statute:
---------------------------------------------------------------------------
\79\Id. at 234.
\80\Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614, 628 (1985)).
\81\Italian Colors Rest., 570 U.S. at 240 (Kagan, J., dissenting).
In the hands of today's majority, arbitration
threatens to become . . . a mechanism easily made to
block the vindication of meritorious federal claims and
insulate wrongdoers from liability. The Court thus
undermines the FAA no less than it does the Sherman Act
and other federal statutes providing rights of
action.\82\
---------------------------------------------------------------------------
\82\Id. at 253.
Critics of the Italian Colors decision similarly note that
it has ``created the possibility that an entity engaging in
monopolistic behavior could encourage and strengthen such
behavior'' by implementing forced arbitration clauses with
merchants.\83\ Now that such clauses are enforceable, entities
engaged in monopolistic behavior can insulate themselves from
virtually any risk of antitrust liability.\84\ As Mr. Gupta
explained at the ACAL Subcommittee's hearing on forced
arbitration, this behavior has two consequences.\85\ First,
antitrust enforcement suffers as a whole due to the decline of
private enforcement.\86\ Second, this decline also results in a
wealth transfer from low-income to high-income individuals in
the absence of open and competitive markets.\87\
---------------------------------------------------------------------------
\83\Robert Ward, Note, Divide & Conquer: How the Supreme Court Used
the Fed. Arbitration Act to Threaten Statutory Rights & the Need to
Codify the Effective Vindication Rule, 39 Seton Hall Legis. J. 149, 162
(2015).
\84\See id.
\85\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 21 (2019) (statement of Deepak Gupta, Founding
Principal, Gupta Wessler PLLC).
\86\Id.
\87\Id.
---------------------------------------------------------------------------
Alan Carlson, the owner of the Italian Colors Restaurant
and the lead plaintiff in the case, urged Congress in 2019 to
``pass the FAIR Act to restore equal access to justice for
small businesses and consumers.''\88\ As he observed, forced
arbitration ``makes it impossible for businesses to hold large
corporations publicly accountable.''\89\ The FAIR Act, he
concluded, ``would give back to small businesses the right to
go before a judge and jury against big corporations instead of
being locked into a forced arbitration system that is too
expensive to use.''\90\
---------------------------------------------------------------------------
\88\Justice Denied: Forced Arbitration and the Erosion of our Legal
System: Hearing on H.R. 963, H.R. 7109, and H.R. 2631 Before the
Subcomm. on Antitrust, Commercial, and Admin. Law of the H. Comm on the
Judiciary, 116th Cong. 6 (2019) (statement of Alan S. Carlson, Owner,
Italian Colors Rest.).
\89\Id. at 5.
\90\Id. at 5-6.
---------------------------------------------------------------------------
A coalition of antitrust law professors have similarly
noted that the FAIR Act is essential to protecting consumers
and small businesses by restoring the private enforcement of
the antitrust laws. They explained:
Billions of dollars are lost by U.S. consumers and
businesses to criminal antitrust conspirators, many of
which are foreign corporations . . . . While criminal
enforcement is important for punishing and deterring
antitrust conspiracies, private enforcement provides
virtually the only way to compensate businesses and
consumers that are victims of antitrust violations. . .
. The FAIR Act would protect consumers and small
businesses from being forced into individual, private
arbitration for antitrust disputes. It would help
preserve the strong private enforcement scheme that
Congress established to protect competition and allow
honest businesses to thrive.\91\
---------------------------------------------------------------------------
\91\Letter from Robert H. Lande, Professor, University of Baltimore
School of Law, et al., to Reps. Jerrold Nadler (D-NY), Chair, & Doug
Collins (R-GA), Ranking Member, Comm. on the Judiciary (Sept. 5, 2019)
(on file with Majority staff of the H. Comm. on the Judiciary).
The American Antitrust Institute and a coalition of other
public interest organizations added that in the absence of
legislation to end forced arbitration, ``the proliferation of
class action waivers in mandatory arbitration clauses will
destroy a wide swath of the private antitrust rights afforded
to the most vulnerable economic actors in the United
States.''\92\
---------------------------------------------------------------------------
\92\Letter from the American Antitrust Institute, et al., to Reps.
Jerrold Nadler (D-NY), Chair, & Doug Collins (R-GA), Ranking Member, H.
Comm. on the Judiciary (Sept. 6, 2019) (on file with Majority staff of
the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
Hearings
For the purposes of clause 3(c)(6)(A) of House Rule XIII,
the following hearing was used to consider H.R. 963:
On February 11, 2021, the ACAL Subcommittee held an
oversight hearing entitled ``Justice Restored: Ending Forced
Arbitration and Protecting Fundamental Rights.'' The Majority
witnesses at the hearing were: Myriam Gilles, Professor of Law,
Paul R. Verkuil Chair in Public Law, Benjamin N. Cardozo School
of Law; Gretchen Carlson, Journalist and Advocate; and Jacob
Weiss, Founder and President, OJ Commerce. The Minority witness
at the hearing was G. Roger King, Senior Labor and Employment
Counsel, HR Policy Association. There, Ms. Carlson testified
about the use of forced arbitration to silence victims of
systemic sexual harassment.\93\ In her testimony, Professor
Gilles similarly explained how forced arbitration ``perpetuates
the exploitation of women in the workplace by shunting victims
into a private system where each is unaware of the other and
where the arbitration provider (who is chosen and paid by the
employer) lacks authority to remedy systemic and recurring
workplace abuse.''\94\ Several of the witnesses urged passage
of the FAIR Act.
---------------------------------------------------------------------------
\93\Justice Restored: Ending Forced Arbitration and Protecting
Fundamental Rights Before the Subcomm. on Antitrust, Commercial, and
Admin. Law of the H. Comm. on the Judiciary, 117th Cong. 1 (2021)
(statement of Gretchen Carlson).
\94\Id. at 9 (statement of Professor Myriam Gilles, Paul R. Verkuil
Chair in Pub. L., Benjamin N. Cardozo Sch. of L.), https://
docs.house.gov/meetings/JU/JU05/2019&fxsp0;0516/109484/HHRG-116-JU05-
Wstate-GillesM-201&fxsp0;90516.pdf.
---------------------------------------------------------------------------
In addition, the following related hearing was held: On
November 16, 2021, the Committee on the Judiciary held a
hearing entitled ``Silenced: How Forced Arbitration Keeps
Victims of Sexual Violence and Sexual Harassment in the
Shadows.'' The Majority witnesses at the hearing were: Eliza
Dushku, Actor, Producer, and Graduate Student; Tatiana
Spottiswoode, Law Student, Columbia Law School; Andowah Newton
of New York, NY; Lora Henry of Canton, OH; and Professor Myriam
Gilles, Professor of Law, Paul R. Verkuil Chair in Public Law,
Cardozo School of Law. The Minority witnesses at the hearing
were: Anna St. John, President and General Counsel, Hamilton
Lincoln Law Institute; and Sarah Parshall Perry, Legal Fellow,
Edwin Meese III Center for Legal and Judicial Studies, The
Heritage Foundation. During the hearing, survivors of sexual
harassment or sexual assault testified about how forced
arbitration clauses blocked their ability to seek justice and
hold wrongdoers accountable and shielded this misconduct from
public scrutiny.\95\
---------------------------------------------------------------------------
\95\Silenced: How Forced Arbitration Keeps Victims of Sexual
Violence and Sexual Harassment in the Shadows Before the Subcomm. on
Antitrust, Commercial, and Admin. Law of the H. Comm on the Judiciary,
117th Cong. 1 (2021) (statement of Professor Myriam Gilles, Paul R.
Verkuil Chair in Pub. L., Benjamin N. Cardozo Sch. of L.).
---------------------------------------------------------------------------
Committee Consideration
On November 3, 2021, the Committee met in open session and
ordered the bill, H.R. 963, favorably reported with an
amendment, by a rollcall vote of 23 to 14, a quorum being
present.
Committee Votes
In compliance with clause 3(b) of House Rule XIII, the
following rollcall votes occurred during the Committee's
consideration of H.R. 963:
1. An amendment by Mr. Bentz of Oregon to amend the bill's
date of enactment failed by a rollcall vote of 15 to 20. The
vote was as follows:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
2. An amendment by Mr. Fitzgerald of Wisconsin to exclude
from the bill a person in any industry affected by labor
shortages or supply-chain disruptions failed by a rollcall vote
of 16 to 22. The vote was as follows:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
3. An amendment by Mr. Fitzgerald of Wisconsin to expand
the bill to include collective bargaining agreements failed by
a rollcall vote of 15 to 21. The vote was as follows:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
4. The motion to report H.R. 963, as amended, favorably was
agreed to by a rollcall vote of 23 to 14. The vote was as
follows:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Committee Oversight Findings
In compliance with clause 3(c)(1) of House Rule XIII, the
Committee advises that the findings and recommendations of the
Committee, based on oversight activities under clause 2(b)(1)
of House Rule X, are incorporated in the descriptive portions
of this report.
Committee Estimate of Budgetary Effects
Pursuant to clause 3(d)(1) of House Rule XIII, the
Committee adopts as its own the cost estimate prepared by the
Director of the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974.
New Budget Authority and Congressional Budget Office Cost Estimate
Pursuant to clause 3(c)(2) of House Rule XIII and section
308(a) of the Congressional Budget Act of 1974, and pursuant to
clause (3)(c)(3) of House Rule XIII and section 402 of the
Congressional Budget Act of 1974, the Committee has requested
but not received from the Director of the Congressional Budget
Office a budgetary analysis and a cost estimate of this bill.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of House Rule XIII, no provision
of H.R. 963 establishes or reauthorizes a program of the
federal government known to be duplicative of another federal
program.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
House Rule XIII, H.R. 963 improves access to justice for
millions of Americans by allowing parties in employment,
consumer, antitrust, or civil rights disputes to elect
arbitration after a dispute has arisen.
Advisory on Earmarks
In accordance with clause 9 of House Rule XXI, H.R. 963
does not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits as defined in clause 9(d),
9(e), or 9(f) of House Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Sec. 1. Short Title. Section 1 sets forth the short title
of the bill as the ``Forced Arbitration Injustice Repeal Act of
2022'' or the ``FAIR Act of 2022.''
Sec. 2. Purposes. Section 2 states that the purposes of the
FAIR Act are to: (1) prohibit pre-dispute arbitration
agreements that force arbitration of future employment,
consumer, antitrust, or civil rights disputes, and (2) prohibit
practices that interfere with the right of individuals and
small businesses to participate in joint class or collective
action related to an employment, consumer, antitrust, or civil
rights dispute.
Sec. 3. Arbitration of Employment, Consumer, Antitrust, and
Civil Rights Disputes. Section 3(a) amends Title 9 of the
United States Code by adding at the end ``Chapter 5--
Arbitration of Employment, Consumer, Antitrust, and Civil
Rights Disputes.''
New Section 501 defines various terms used under new
chapter 5. For example, it defines ``antitrust dispute'' as
arising from an alleged violation of the antitrust laws, as
defined in the first section the Clayton Act or State antitrust
laws, and in which the plaintiffs seek certification under Rule
23 of the Federal Rules of Civil Procedure or a comparable
state law.
The term ``civil rights dispute'' is defined as a dispute
``arising from an alleged violation of the Constitution of the
United States or the constitution of a State'' or any Federal,
State or local law that prohibits discrimination on the basis
of ``race, sex, age, gender identity, sexual orientation,
disability, religion, national origin, or any legally protected
status in education, employment, credit, housing, public
accommodations and facilities, voting, veterans, health care,
or a program funded or conducted by the Federal Government or a
State Government,'' in which at least one party is alleging a
violation, including seeking class certification under Federal
or State law.
The term ``consumer dispute'' is defined as a dispute
between one or more individuals who ``seek or acquire'' ``real
or personal property, services . . . securities or other
investments, money, or credit for personal, family, or
household purposes,'' including individuals seeking class
certification under Federal or State law, and a ``seller or
provider'' of such listed services, or a ``third party
involved'' in the ``selling, providing of, payment for, receipt
or use of information about, or other relationship to any such
property, services, securities or other investments, money, or
credit.''
The term ``employment dispute'' means a dispute between one
or more individuals and a person ``arising out of or related to
the work relationship or prospective work relationship,''
regardless of ``whether the individual is or would be
classified as an employee or an independent contractor with
respect to such work.'' Section 501 concludes by defining
``pre-dispute arbitration agreement'' as an agreement to
arbitrate a dispute before the dispute has arisen, and ``pre-
dispute joint-action waiver'' as an agreement that would waive
the right of one of the parties to participate in a joint,
class or collective action.
New section 502 first provides that no pre-dispute
arbitration agreement or pre-dispute joint-action waiver shall
be valid or enforceable relating to disputes described within
the chapter. It further provides that a court, and not an
arbitrator, shall determine whether this chapter applies to an
agreement to arbitrate, and the enforceability of that
agreement. Section 502 specifies that chapter 5 does not apply
to any arbitration provision between an employee and a labor
organization or between labor organizations.
Section 3(b) makes a series of technical and conforming
amendments.
Sec. 4. Effective Date. Section 4 provides that the
legislation applies to any dispute or claim that arises or
accrues on or after the date of enactment of the legislation.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
TITLE 9, UNITED STATES CODE
Chap. Sec.
General provisions...............................................1
* * * * * * *
Arbitration of Employment, Consumer, Antitrust, and Civil Rights .
501 Disputes........................................................
* * * * * * *
CHAPTER 1--GENERAL PROVISIONS
* * * * * * *
Sec. 1. ``Maritime transactions'' and ``Commerce'' defined; exceptions
to operation of title
``Maritime transactions'', as herein defined, means charter
parties, bills of lading of water carriers, agreements relating
to wharfage, supplies furnished vessels or repairs to vessels,
collisions, or any other matters in foreign commerce which, if
the subject of controversy, would be embraced within admiralty
jurisdiction; ``commerce'', as herein defined, means commerce
among the several States or with foreign nations, or in any
Territory of the United States or in the District of Columbia,
or between any such Territory and another, or between any such
Territory and any State or foreign nation, or between the
District of Columbia and any State or Territory or foreign
nation, but nothing herein contained shall apply to contracts
of employment [of seamen, railroad employees, or any other
class of workers engaged in foreign or interstate commerce] of
individuals, regardless of whether such individuals are
designated as employees or independent contractors for other
purposes.
Sec. 2. Validity, irrevocability, and enforcement of agreements to
arbitrate
A written provision in any maritime transaction or a contract
evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of such
contract or transaction, or the refusal to perform the whole or
any part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such a
contract, transaction, or refusal, shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract or as otherwise
provided in chapter 4 or 5.
* * * * * * *
CHAPTER 2--CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN
ARBITRAL AWARDS
* * * * * * *
Sec. 208. Application
Chapter 1 applies to actions and proceedings brought under
this chapter to the extent that chapter is not in conflict with
this chapter or the Convention as ratified by the United
States. This chapter applies to the extent that this chapter is
not in conflict with chapter 4 or 5.
* * * * * * *
CHAPTER 3--INTER-AMERICAN CONVENTION ON INTERNATIONAL COMMERCIAL
ARBITRATION
* * * * * * *
Sec. 307. Application
Chapter 1 applies to actions and proceedings brought under
this chapter to the extent chapter 1 is not in conflict with
this chapter or the Inter-American Convention as ratified by
the United States. This chapter applies to the extent that this
chapter is not in conflict with chapter 4 or 5.
* * * * * * *
CHAPTER 5--ARBITRATION OF EMPLOYMENT, CONSUMER, ANTITRUST, AND CIVIL
RIGHTS DISPUTES
Sec.
501. Definitions.
502. No validity or enforceability.
Sec. 501. Definitions
In this chapter--
(1) the term ``antitrust dispute'' means a dispute--
(A) arising from an alleged violation of the
antitrust laws (as defined in subsection (a) of
the first section of the Clayton Act) or State
antitrust laws; and
(B) in which the plaintiffs seek
certification as a class under rule 23 of the
Federal Rules of Civil Procedure or a
comparable rule or provision of State law;
(2) the term ``civil rights dispute'' means a
dispute--
(A) arising from an alleged violation of--
(i) the Constitution of the United
States or the constitution of a State;
(ii) any Federal, State, or local law
that prohibits discrimination on the
basis of race, sex, age, gender
identity, sexual orientation,
disability, religion, national origin,
or any legally protected status in
education, employment, credit, housing,
public accommodations and facilities,
voting, veterans or servicemembers,
health care, or a program funded or
conducted by the Federal Government or
State government, including any law
referred to or described in section
62(e) of the Internal Revenue Code of
1986, including parts of such law not
explicitly referenced in such section
but that relate to protecting
individuals on any such basis; and
(B) in which at least one party alleging a
violation described in subparagraph (A) is one
or more individuals (or their authorized
representative), including one or more
individuals seeking certification as a class
under rule 23 of the Federal Rules of Civil
Procedure or a comparable rule or provision of
State law;
(3) the term ``consumer dispute'' means a dispute
between--
(A) one or more individuals who seek or
acquire real or personal property, services
(including services related to digital
technology), securities or other investments,
money, or credit for personal, family, or
household purposes including an individual or
individuals who seek certification as a class
under rule 23 of the Federal Rules of Civil
Procedure or a comparable rule or provision of
State law; and
(B)(i) the seller or provider of such
property, services, securities or other
investments, money, or credit; or
(ii) a third party involved in the selling,
providing of, payment for, receipt or use of
information about, or other relationship to any
such property, services, securities or other
investments, money, or credit;
(4) the term ``employment dispute'' means a dispute
between one or more individuals (or their authorized
representative) and a person arising out of or related
to the work relationship or prospective work
relationship between them, including a dispute
regarding the terms of or payment for, advertising of,
recruiting for, referring of, arranging for, or
discipline or discharge in connection with, such work,
regardless of whether the individual is or would be
classified as an employee or an independent contractor
with respect to such work, and including a dispute
arising under any law referred to or described in
section 62(e) of the Internal Revenue Code of 1986,
including parts of such law not explicitly referenced
in such section but that relate to protecting
individuals on any such basis, and including a dispute
in which an individual or individuals seek
certification as a class under rule 23 of the Federal
Rules of Civil Procedure or as a collective action
under section 16(b) of the Fair Labor Standards Act, or
a comparable rule or provision of State law;
(5) the term ``predispute arbitration agreement''
means an agreement to arbitrate a dispute that has not
yet arisen at the time of the making of the agreement;
and
(6) the term ``predispute joint-action waiver'' means
an agreement, whether or not part of a predispute
arbitration 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.
Sec. 502. No validity or enforceability
(a) In General.--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.
(b) Applicability.--
(1) In general.--An issue as to whether this chapter
applies with respect to a dispute shall be determined
under Federal law. The applicability of this chapter to
an agreement to arbitrate and the validity and
enforceability of an agreement to which this chapter
applies shall be determined by a court, rather than an
arbitrator, irrespective of whether the party resisting
arbitration challenges the arbitration agreement
specifically or in conjunction with other terms of the
contract containing such agreement, and irrespective of
whether the agreement purports to delegate such
determinations to an arbitrator.
(2) Collective bargaining agreements.--Nothing in
this chapter shall apply to any arbitration provision
in a contract between an employer and a labor
organization or between labor organizations, except
that no such arbitration provision shall have the
effect of waiving the right of a worker to seek
judicial enforcement of a right arising under a
provision of the Constitution of the United States, a
State constitution, or a Federal or State statute, or
public policy arising therefrom.
Minority Views
H.R. 963 is the Democrats' latest effort to gut arbitration
agreements. It makes predispute arbitration agreements
unenforceable in all sorts of contexts--in employment disputes,
consumer disputes, antitrust disputes, and civil rights
disputes. The bill invalidates millions of current--and
completely legal--contracts that could save Americans time and
money. By cutting off the option to resolve disputes in
arbitration, the bill will push more people into the courts.
More lawsuits, in turn, will ultimately mean higher prices and
fewer jobs.
The bill starts with misleading rhetoric. It claims to be
targeting ``forced'' arbitration agreements, but forced or
involuntary agreements are already illegal.\1\ In reality,
predispute arbitration agreements are voluntary agreements
between people who want to resolve their future disputes out of
court. It is these voluntary agreements to use alternative
dispute resolution that the bill actually voids. Representative
Cliff Bentz warned during the Committee's consideration of H.R.
963 that ``confusing contracts of adhesion . . . with
negotiated agreements that this bill would prevent and also
wipe out is simply not appropriate; [it] shouldn't be done.''
But the bill does exactly that.
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\1\See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)
(explaining that ``agreements to arbitrate [may] be invalidated by
`generally applicable contract defenses, such as fraud, duress, or
unconscionability''' (citation omitted)); Shearson/Am. Exp., Inc. v.
McMahon, 482 U.S. 220, 226 (1987) (noting that an arbitration agreement
may be invalidated if it ``resulted from the sort of fraud or excessive
economic power that `would provide grounds for the revocation of any
contract''' (citation omitted)).
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There are many reasons why people might rather agree to
resolve future disputes using arbitration. Arbitration is often
less expensive and faster than litigation, and it offers more
flexibility in terms of process and scheduling.\2\ It tends to
be less adversarial, which allows parties to maintain ongoing
and future relationships.\3\ The benefits are not limited to
process and logistics, either. Studies have shown that
plaintiffs in employment and consumer disputes win more often
and recover more money in arbitration than they do in
litigation.\4\
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\2\See H.R. REP. NO. 97-542, at 13 (1982).
\3\See id.; Justice Denied: Forced Arbitration and the Erosion of
our Legal System, Hearing Before the Subcomm. on Antitrust, Commercial,
and Administrative Law of the H. Comm. on the Judiciary, 116th Cong.
(2019) (Testimony of Mr. Phil Goldberg, at 4), https://docs.house.gov/
meetings/JU/JU05/20190516/109484/HHRG-116-JU05-Wstate-GoldbergP
20190516.pdf.
\4\Nam D. Pham & Mary Donovan, Fairer, Faster, Better: An Empirical
Assessment of Employment Arbitration, NDP ANALYTICS 5 (May 2019),
https://instituteforlegalreform.com/research/fairer-faster-better-an-
empirical-assessment-of-employment-arbitration/; Nam D. Pham & Mary
Donovan, Fairer, Faster, Better II: An Empirical Assessment of Consumer
Arbitration, NDP ANALYTICS 4 (Nov. 2020), https://
instituteforlegalreform.com/new-study-consumers-win-more-money-more-
often-and-more-quickly-in-arbitration-than-in-court/.
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Despite all of these benefits, the bill will effectively
take the option to arbitrate off the table. In theory, people
could agree after a dispute arises to resolve it in
arbitration.\5\ In practice, though, that never happens. After
there is a dispute, emotions are running high, and lawyers have
a financial incentive to recommend litigation.\6\ Once an
actual dispute arises, parties will develop a strategy to
resolve that dispute, rather than looking for a resolution
option that benefits both parties. When analyzing a specific
dispute, one of the parties is more likely to see some
strategic advantage in court.
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\5\See H.R. 963, 117th Cong. Sec. 5 (2021) (``Nothing in this Act,
or the amendments made by this Act, shall be construed to prohibit the
use of arbitration on a voluntary basis after the dispute arises.'').
\6\See Justice Denied: Forced Arbitration and the Erosion of our
Legal System, Hearing Before the Subcomm. on Antitrust, Commercial, and
Administrative Law of the H. Comm. on the Judiciary, 116th Cong. (2019)
(Testimony of Mr. Andrew Pincus, at 9), https://docs.house.gov/
meetings/JU/JU05/20190516/109484/HHRG-116-JU05-Wstate-PincusA-
20190516.pdf.
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With no real option to arbitrate, the bill will either push
more Americans into court--where they will pay more and
possibly recover less--or prevent them from having their claims
heard at all.\7\ American job creators will feel these effects,
too. Lawsuits generally cost more than arbitration, and this
bill will lead to more of them. Increased litigation will raise
costs for employers, who are already dealing with through-the-
roof inflation and a supply-chain crisis. During the
Committee's business meeting, Representative Scott Fitzgerald
offered an amendment that would have carved out employers in
industries affected by labor shortages or supply-chain
disruptions. Democrats rejected the amendment and chose to pile
yet another expense onto these employers. To deal with the
higher litigation costs, employers will likely raise prices and
hire fewer employees.
---------------------------------------------------------------------------
\7\Id. at 6 (``A key obstacle to pursuing an individualized, small-
value claim in court is the cost of hiring counsel. Unrepresented
parties have little hope of navigating the complex procedures that
apply to litigation in court, yet a lawyer's hourly billing rate may
itself exceed the amount at issue in many claims. Many lawyers,
especially those working on a contingency basis, are unlikely to take
cases when the prospective of a substantial payout is slim.'').
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Some plaintiffs will find that it is simply too expensive
to pursue their claims in court, and others will find that
class action lawsuits are their only option. But class actions
are not always a good option for consumers. Even when class
actions are successful, sometimes only a small percentage of
the class members claim their relief,\8\ and those individual
members who do claim their relief ``often . . . recover little
or nothing of value.''\9\ Further, class actions are
``expensive, raising costs to consumers in the long run . . .
.''\10\
---------------------------------------------------------------------------
\8\Alison Frankel, FTC's comprehensive study finds median consumer
class action claims rate is 9%, REUTERS (Sept. 10, 2019) (``The Federal
Trade Commission has just published a staff report on what it believes
to be the most comprehensive study ever conducted on consumers''
response to class action settlements. Its marquee finding, after
collating data on 149 consumer class actions from seven different
claims administrators: The median claims rate in these cases is 9%. The
weighted mean claims rate, which takes into account the number of class
members who received settlement notifications, is 4%.''), https://
www.reuters.com/article/us-otc-claimsrate/ftcs-comprehensive-study-
finds-median-consumer-class-action-claims-rate-is-9-idUSKCN1VV2QU.
\9\Ted Frank, Class Actions, Arbitration, and Consumer Rights: Why
Concepcion Is a Pro-Consumer Decision, MANHATTAN INSTITUTE 4 (Feb. 19,
2013), https://media4.manhattan-institute.org/pdf/lpr_16.pdf.
\10\Id.
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A surge in lawsuits will not help everyday Americans or
small businesses, but it will help the plaintiffs' lawyers.\11\
It is thus no surprise that Democrats have been pushing this
attack on arbitration agreements for years.\12\ Notably,
Democrats have consistently carved out certain agreements in
union contracts. As Representative Fitzgerald explained during
the Committee's business meeting, ``[i]nstead of setting one
standard and having everyone play by the same rules, the
Democrats have singled out unions for favorable treatment.''
When he offered an amendment to ``remove th[is] blatant
inconsistency,'' the Democrats rejected it.
---------------------------------------------------------------------------
\11\Regina Thomson, Commentary, Democrats' war on arbitration only
benefits trial lawyers, FORTUNE (Dec. 1, 2021, 11:26 AM) (``[A]
[Democrat] supporter of [another bill that would invalidate predispute
arbitration agreements in certain contexts] . . . admitted during the
recent markup of this bill that [it] `is important to the trial
bar.'''), https://fortune.com/2021/12/01/democrats-workplace-
arbitration-trial-lawyers-reconciliation-bill/.
\12\See, e.g., H.R. 1423, 116th Cong. (2019); H.R. 1374, 115th
Cong. (2017); H.R. 2087, 114th Cong. (2015).
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The bill's defects are not limited to the host of issues to
come--it also creates a big problem right now. The bill
immediately voids existing contracts. Every Member should be
alarmed when the Federal government sets out to intervene in
private contracts and rewrites private agreements to benefit
political interests. Representative Bentz offered an amendment
that would have fixed this problem, but Democrats, again,
rejected it. In fact, Chairman Jerrold Nadler admitted that
``the whole point of the bill is to invalidate all those
[existing] arbitration agreements.'' Democrats want to
undermine the rule of law by rewriting millions of private
contracts by government fiat.
This bill micromanages private relationships and puts the
priorities of the plaintiffs' bar and union bosses above the
interests of hardworking Americans and small businesses. It
prevents private parties from agreeing to resolve disputes the
way they want to, and it signals--loud and clear--that big
government knows best. The Committee should instead focus on
legislation that protects freedom and gives Americans more, not
less, power to make their own decisions.
Jim Jordan,
Ranking Member.
[all]