For decades, American employers have relied on judicial precedent and the Federal Arbitration Act (FAA) to enforce predispute mandatory arbitration agreements, which are signed before any known conflict arises between the employer and the employee (typically at the beginning of the employment relationship) requiring them to arbitrate any future employment disputes. They often contain provisions by which employees waive their right to file a class or collective action against the employer. They have been essential weapons in an employer’s arsenal for limiting costs and risks associated with class/collective actions.
There has been a growing movement to limit, or outright eliminate, an employer’s ability to enforce predispute arbitration agreements and class/collective action waivers. On March 17, 2022, the U.S. House of Representatives took another step toward the goal. In a 222-to-209 vote, the House passed the “Forced Arbitration Injustice Repeal Act of 2022,” commonly referred to as the “FAIR Act.”
The FAIR Act’s stated purpose is two-fold: (1) ban predispute agreements that force the arbitration of future employment disputes, and (2) prohibit agreements that interfere with an employee’s right to participate in class or collective actions related to their employment. The Act further states that any agreements contradictory to these goals would be invalid and unenforceable.
Notably, the Act doesn’t prohibit an employer and employee from agreeing to arbitration after a dispute has arisen, although employees are often reluctant to enter into arbitration agreements after a conflict has ignited.
If it were to become law, the FAIR Act would dramatically change the landscape of employment litigation, especially disputes about minimum wage and overtime pay filed under the Fair Labor Standards Act (FLSA). In an FLSA collective action, an employee files suit on behalf of herself and all other similarly situated persons. If a court conditionally certifies a class (technically referred to as a “collective” in FLSA cases), then written notice will be sent to all similarly situated persons to give them an opportunity to join in the litigation.
As one can imagine, litigation costs and potential liability exposure increase dramatically with the conditional certification of a class. Employers are often able to keep the costs down by requiring employees to arbitrate the claims individually under the terms of a predispute agreement. If the FAIR Act becomes law, employers will no longer be able to rely on predispute agreements to reduce the costs and risks.
FAIR Act Now Proceeds to Senate
The future of the FAIR Act, and whether it will eventually become law, is far from certain. The House passed the Act largely on partisan lines: All but one of the 222 votes in favor of the Act were cast by Democrats, and all of the 209 votes against it were cast by Republicans. The current makeup of the Senate is 50 Republicans, 48 Democrats, and 2 independents who both caucus with Democrats. It’s unclear whether the Senate will vote by party lines as did the House.
Nonetheless, you should keep an eye on the future of the FAIR Act as well as the growing legislative trend of limiting the enforceability of arbitration agreements.
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