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Fact Sheet - The Arbitration Fairness Act of 2007

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.

A large and growing number of corporations now require millions of consumers and employees to sign contracts that include mandatory arbitration clauses. Most of these individuals have little or no meaningful opportunity to negotiate the terms of their contracts and so find themselves having to choose either to accept a mandatory arbitration clause or to forgo securing employment or needed goods and services. Incredibly, mandatory arbitration clauses also apply when individuals are trying to vindicate their civil rights under statutes specifically passed by Congress to protect them.

Although arbitration can be a fair and efficient way to resolve a dispute when both parties choose it after the dispute arises, there are a range of ways in which arbitration can be particularly hostile to individuals attempting to assert their rights. For example, high administrative fees, a lack of discovery proceedings and other civil due process protections, and no meaningful judicial review of arbitrators’ decisions can all act as barriers to the fair and just resolution of an individual’s claim. When arbitration is required rather than voluntarily chosen, the likelihood that these problems will occur and that arbitrators will favor repeat corporate players over individual claimants is increased.

Although some states have tried to address this problem through consumer protection laws, courts have interpreted the FAA as trumping those state laws. In the current legal environment, consumers and employees have little recourse when faced with a mandatory arbitration system that is tilted in favor of large corporate interests. Contrary to the intent of the FAA, ordinary citizens are being forced into arbitration against their wishes.

The Arbitration Fairness Act of 2007, which I introduced in the Senate and Rep. Hank Johnson (D-GA) introduced in the House, 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 contractual provision. It will ensure that citizens have a true choice between arbitration and the traditional civil court system. The Act does not apply to collective bargaining agreements.

A coalition of consumer and employment rights groups supports the measure. Included in the coalition are Consumers Union, Consumer Federation of American, Public Citizen, National Consumer Coalition for Nursing Home Reform, American Association for Justice, National Employment Lawyers Association, and National Association of Consumer Advocates.