New legislation in Congress would mandate that every company—including broker-dealers, investment advisors and insurance companies—eliminate the arbitration clauses they make employees and customers sign.
“Forced arbitration deprives people of that basic right to a day in court, in public, on the record, fairly before a neutral decision maker,” Sen. Richard Blumenthal (D-Conn.) said at a press conference Thursday.
Blumenthal is the Senate sponsor of the Forced Arbitration Injustice Repeal (FAIR) Act, which has been sponsored in the House by by Rep. Hank Johnson (D-Ga.), Rep. Jerrold Nadler (D-N.Y.) and Rep. Bobby Scott (D-Va.). Companion legislation, the Restoring Justice for Workers Act (RJFWA), has been sponsored by Nadler and Scott.
The clauses are widely used to limit Americans’ access to justice in consumer, civil rights, employment and antitrust disputes, Blumenthal said. Eliminating forced arbitration is a bipartisan issue that he expects to pass the House, he added.
The new legislation would be a boon for investors who are routinely corralled into forced arbitration clauses without knowing it, said Christine Lazaro, president of the Public Investors Arbitration Bar Association (PIABA).
“It will be helpful for investors because it prohibits pre-dispute arbitration agreements, which so often investors don’t even realize they’re signing,” said Lazaro, professor of Clinical Legal Education and director of the Securities Arbitration Clinic at St. John's University School of Law in New York.
Signing the forced arbitration clauses “isn’t a conscious decision investors or employees are making to agree to this form of dispute resolution and it’s not until something goes wrong that they realize that they give up their right to go to court,” Lazaro said.
Eliminating forced arbitration clauses would allow investors and employees to go to court, which they are prohibited from doing now, she said.
“Court offers protections that arbitration doesn’t offer, like putting your case before a jury. I think it’s important that investors have the ability to decide what the appropriate forum would be to resolve their disputes,” Lazaro said.
The bill has sweeping ramifications for the securities and financial services industries, which universally require both employees and clients to waive their litigation rights with forced arbitration clauses.
Lazaro noted that some states are moving to restore investors’ legal rights. Nevada’s “best-interest” regulation, for instance, would give investors a private right of action to sue if they believe their advisor or broker violates their fiduciary rights.
The regulation would for the first time shift the burden of proof to brokers or advisors. “Unlike now, where the presumption for brokers [in arbitration] is that they have no fiduciary duty, you’ll be starting with the presumption that the fiduciary duty applies. The broker-dealer firm will have to establish that one of the exceptions in the rule applies,” added Lazaro.
It is unclear if the Republican Senate would pass such legislation. The securities, banking, credit card and insurance industries have historically vehemently opposed similar legislation for fear of massive class-action suits.
“Bills challenging arbitration clauses haven’t gotten to a vote in the prior Congresses, so we’re certainly hopeful that it will gain some traction,” Lazaro said.
But headwinds may be changing. A new nationwide poll by Hart Research found broad bipartisan support from 84 percent of voters for legislation to end forced arbitration, with 87 percent of Republicans and 83 percent of Democrats supporting such legislation.
Paul Bland, executive director of Public Justice, a consumer advocacy group, said that nationally “the energy in favor of the FAIR Act is like nothing I’ve seen before in this fight for corporate accountability. ... Its passage would make American life much safer, healthier, and fairer.”
Blumenthal introduced his bill while standing with Chipotle employees who were forced to work overtime without pay and were not able to file class action lawsuit because they were forced to sign a forced arbitration clause when hired.
Other speakers included Google employees and former Fox News host Gretchen Carlson, who made news as a leader of the #MeToo movement when she shared her story of being sexually harassed at the TV network. Carlson recounted being limited in seeking legal justice because of a forced arbitration clause in her employment contract. Fox eventually settled with the anchor for $20 million.
Carlson named Google, Lyft, Microsoft, Uber and Vox Media as other tech companies that have taken leadership in ending forced arbitration and called upon other companies to do the same.
Last week, Google announced it has ended forced arbitration for the workers it directly employs, but not for the 50 percent of its workforce who are independent contractors.