Arbitration Fairness Act of 2009
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The Arbitration Fairness Act of 2009 was introduced in February of this year. The act proposes that "pre-dispute arbitration agreements will not be enforceable if it requires the arbitration of employment, consumer, or franchise disputes." The act is aimed at preventing mandatory arbitration clauses from being enforceable against parties of unequal bargaining power.
Arbitration agreements are found in many consumer contracts. Since these agreements contain boiler-plate take-it-or-leave-it terms (commonly referred to as adhesion contracts) and are often in fine print, many people do not realize the rights they are waiving and the legal ramifications or impact they may face by signing such an agreement. Congress stated that its purpose for amending the Federal Arbitration Act is to level the playing field between consumers and corporations.
Why are mandatory arbitration clauses so controversial? In 1995 the Supreme Court held in Allied Bruce Terminix Companies v. Dobson, 513 U.S. 265, that mandatory arbitration agreements are enforceable under the Federal Arbitration Act. However, this precedent has been the source of much controversy since many opponents of these clauses contend that it takes away from the 7th amendment right to a jury trial.
Congress stated that "the Federal Arbitration Act was meant to be applicable only to disputes between commercial entities of generally similar sophistication and bargaining power," and that the proposed amendment was due largely in part to the Supreme Court's construction of the act.
This bill, if passed, will affect nearly all consumers. As stated by the American Association of Justice (AAJ),
Forced arbitration clauses are hidden in the fine print of everything from cell phone, home, credit card and retirement account terms of agreement to employment and nursing home contracts. Just by taking a job or buying a product or service, consumers and employees are forced to give up their right to take their case to court if they are harmed by a corporation.
Even though these provisions may be declared enforceable by a court if they are deemed unconscionable, there is no standardized test for making such a determination. Furthermore, the burden of proving unconscionability is on the party seeking to void the provision, which is most often the consumer or employee.
Since most consumers and employees do not have the same monetary resources as large companies, bringing a claim asserting the unconscionability of an arbitration agreement may be too costly to pursue. Therefore, many people grudgingly submit to these arbitration agreements.
Under the Arbitration Fairness Act of 2009, these mandatory provisions will be declared unenforceable and will protect consumer, employees, and franchisees from mandatory arbitration agreements unless both parties consent.