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The U.S. House of Representatives recently passed H.R. 1423, the “Forced Arbitration Injustice Repeal Act” or the “FAIR Act,” that “would prohibit the enforcement of mandatory, pre‑dispute arbitration (‘forced arbitration’) provisions in contracts involving consumer, employment, antitrust, and civil rights disputes.”[mfn]H. Rept. 116-204 – Forced Arbitration Injustice Repeal Act, 4 (2019), https://www.congress.gov/116/crpt/hrpt204/CRPT-116hrpt204.pdf [https://perma.cc/B8NC-USZX].[/mfn] Why does that matter to you or your business? Ask yourself: how often do you read the terms and conditions that come with using a product or service, before you agree to them? If you do so consistently, you are probably well‑aware of just how common mandatory arbitration provisions in these contracts are; if you do not consistently review terms and conditions, there is a very good chance that you have already agreed to many contracts that contained a provision in which you waived your right to sue in court.
Congress enacted the Federal Arbitration Act (FAA) back in 1925. The greatest argument for arbitration tends to come from characterizing it as a “speedier, less expensive and more flexible means of dispute resolution than litigation.”[mfn]Id. at 30. (dissenting views).[/mfn] There is some truth to that, and in some cases, it may be beneficial to arbitrate a dispute. Generally speaking though, that process is made more fair if both sides to the dispute are equally free to make the decision to arbitrate the dispute.
The problem is that far too often, small businesses (and consumers) are not in an equal bargaining position with a major corporation. The proliferation of mandatory arbitration provisions and class‑action waivers in the contracts that small businesses have to agree to, in order to gain access to services and products that are essential for competing and establishing a healthy marketplace for all, “is among the most profound shifts in our legal history.”[mfn]Jessica Silver-Greenberg & Robert Gebeloff, Beware the Fine Print (Part I): Arbitration Everywhere, Stacking the Deck of Justice, The New York Times, October 31, 2015, https://www.nytimes.com/2015/11/01/business/dealbook/arbitration-everywhere-stacking-the-deck-of-justice.html [https://perma.cc/W8A4-68NH].[/mfn] In fact, this shift has created a burden on small businesses because big “business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”[mfn]Id.[/mfn]
By forcing small businesses to waive their right to class‑action lawsuits in order to use products and services essential to their business, large corporations are able to make lawsuits against them cost prohibitive. Recent examples of when a class‑action waiver as part of a mandatory arbitration clause were upheld by the Supreme Court include requiring each individual customer to challenge a $30.22 charge on his or her phone bill in an individual capacity;[mfn]See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 337 (2011).[/mfn] and requiring a group of small businesses to take on a credit card processor for alleged monopolistic practices on an individual basis that — at best — could cost more than twenty-five times what each small business could recover on its own.[mfn]American Exp. v. Italian Colors Restaurant, 570 U.S. 228, 231 (2013).[/mfn]
Legislative history suggests that Congress only intended arbitration provisions to be enforceable under the Act when parties to the contract in question were of “[]equal bargaining power.”[mfn]Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 414 (Black, J., dissenting).[/mfn] Consolidation of industries often means that small businesses are confronted with a Hobson’s choice: either accept terms and conditions that feature a forced arbitration clause if it wants to do business with a large corporation, or forgo use of a common product or service. The use of a cell phone is illustrative of this “take‑it‑or‑leave‑it” offer: “nearly 90% of mobile phone services contain a forced arbitration clause . . . .”[mfn]H. Rept. 116-204 – Forced Arbitration Injustice Repeal Act, supra note 1 at 9.[/mfn] It is hardly fair to say that a small business has voluntarily agreed to an arbitration provision in a contract for an item that is essential for them to connect with customers and vendors, when it is nearly impossible to find a service provider that won’t require them to waive their right to have their day in court. The FAIR Act “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,” and provide an essential mechanism for “protecting . . . small businesses by restoring the private enforcement of antitrust laws.”[mfn]Id. at 15.[/mfn]
Unfortunately, there may be roadblocks to passage of the FAIR Act. The dissenting views in the House of Representatives that are likely to be echoed in the Senate, are centered around strawman arguments. These arguments suggest that the legislation would “effectively wipe out the availability of arbitration,”[mfn]Id. at 45. (dissenting views).[/mfn] when in fact it simply prohibits small businesses (and consumers) from being forced to agree to resolve disputes in a specific way before they even know what that harm could be. This legislation would allow small businesses to determine — once they have been harmed by a large corporation — how they want to go about fixing that harm. They can pursue their solution by going through the more judicious method of litigating the case in a court, or they can take the faster approach through arbitration. The argument that arbitration will be “wiped away” if small businesses are given the choice between arbitrating and suing in a court, simply suggests that the prevailing use of arbitration is actually not the method that small businesses would prefer to resolve their disputes, but rather one that is forced upon them.
[1] H. Rept. 116-204 – Forced Arbitration Injustice Repeal Act, 4 (2019), https://www.congress.gov/116/crpt/hrpt204/CRPT-116hrpt204.pdf [https://perma.cc/B8NC-USZX].
[2] Id. at 30. (dissenting views).
[3] Jessica Silver-Greenberg & Robert Gebeloff, Beware the Fine Print (Part I): Arbitration Everywhere, Stacking the Deck of Justice, The New York Times, October 31, 2015, https://www.nytimes.com/2015/11/01/business/dealbook/arbitration-everywhere-stacking-the-deck-of-justice.html [https://perma.cc/W8A4-68NH].
[4] Id.
[5] See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 337 (2011).
[6] American Exp. v. Italian Colors Restaurant, 570 U.S. 228, 231 (2013).
[7] Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 414 (Black, J., dissenting).
[8] H. Rept. 116-204 – Forced Arbitration Injustice Repeal Act, supra note 1 at 9.
[9] Id. at 15.
[10] Id. at 45. (dissenting views).