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.