In the Crosshairs: U.S. Congress Again Takes Aim at Arbitration Agreements in Employment Context

In the U.S. Congress’ latest proposal to strike against arbitration, Judiciary Committee Chairman Jerrold Nadler and Labor Committee Chairman Robert C. “Bobby” Scott introduced the Restoring Justice for Workers Act.  The proposed legislation seeks to put an end to pre-dispute arbitration clauses in the employment context.  Significantly, a similar bill was introduced in October 2018 but did not receive a U.S. Senate vote and died in session.  The 2021 version of the bill will likely suffer a similar fate.  Although frequently under attack, pre-dispute arbitration agreements remain an important and effective tool for employment dispute resolution.

Latest Attempt at Federal Legislation

The stated purpose of the Restoring Justice for Workers Act is to:

• Prohibit pre-dispute arbitration agreements that require arbitration of work disputes;
• Prohibit retaliation against workers for refusing to arbitrate work disputes;
• Provide protections to ensure that post-dispute arbitration agreements are voluntary and with informed consent of workers; and
• Amend the National Labor Relations Act to prohibit agreements and practices that interfere with the employee’s right to engage in concerted activity regarding work disputes.

The Restoring Justice for Workers Act would also do away with class and collective action waivers, and effectively would reverse the United States Supreme Court’s 5-4 decision in Epic Systems v. Lewis, 538 U.S. ___ (2018), in which the Court affirmed that employers may require workers to sign arbitration clauses containing class and collective action waivers.

Arguing in support of the bill, Rep. Nader reasoned that “…[f]or far too long, corporations have used mandatory arbitration clauses – which are often buried in the fine print of employment contracts – to tie the hands of American workers and strip them of their right to take employers to court when their rights are violated.”  Rep. Scott added that “[w]orkers should not be coerced into signing away their rights as a condition of their employment…[e]mployers are increasingly using mandatory arbitration agreements to deny employees a fair venue to seek recourse…”  Supporters of the bill opine that employees have a fundamental right to have their day in court.

The Restoring Justice for Workers Act is only the latest effort to do away with arbitration agreements and is likely to encounter stiff resistance.  Indeed, in February of this year, U.S. Representative Hank Johnson re-introduced the Forced Arbitration Injustice Repeal (FAIR) Act, which passed the U.S. House of Representatives in 2019 (and which we reported on at the time), but it was not taken up by the U.S. Senate.  The FAIR Act would have eliminated the use of pre-dispute arbitration agreements that are often used to resolve antitrust, employment, civil rights, and consumer disputes in an effective, efficient, and private manner.

Opponents of the Restoring Justice for Workers Act argue that passage of the bill will lead to an increase in costly and time-consuming class and representative action litigation.  This, in turn, will place a further strain on our already overburdened court system.  They further posit that the parties best served by the proposed legislation are the attorneys filing the class action lawsuits, who stand to rake in potentially sizable class action attorneys’ fees.

Although these bills are far from becoming law, employers should pay close attention to these and any future efforts to disturb the efficacy of arbitration agreements, which have been protected by the Federal Arbitration Act (FAA) since 1925.

Recent State Laws

Although the Restoring Justice for Workers Act faces an uphill climb, several states also have passed their own laws purporting to restrict the use of arbitration agreements.  We have recently reported on some of these laws, including in California, New Jersey, New York, Illinois, Maryland, Washington, and Kentucky.  Many of these laws are currently being challenged in court on FAA preemption grounds.  Several courts already have issued such decisions.

Additionally, employers in states like California should be mindful of critical state laws such as the State’s Private Attorney’s General Act (PAGA), as they provide alternative mechanisms for employees to circumvent arbitration agreements and file suit.  For more on PAGA and arbitration agreements, see our discussion of PAGA and FAA preemption here.

Arbitration Agreements Remain an Important and Effective Option

Despite these attempts to limit the efficacy of arbitration agreements, employers should not be deterred, as customized, well-drafted dispute resolution agreements still well-serve employers and employees alike in providing alternative dispute mechanism.

Jackson Lewis attorneys are available to answer any questions you may have regarding arbitration agreements, employment-related litigation, or any other employment law issues.

This article first appeared on the Litigators at Work Blog, here.

John Schaffer

John A. ("Drew") Schaffer is an associate in the Orange County, California office of Jackson Lewis P.C. His practice focuses on representing employers in workplace law matters, including pre-litigation claims and litigation through trial, as well as preventative advice and counseling. Before joining Jackson Lewis, Drew handled employment law matters…

Marla Presley

Marla N. Presley is the office managing principal and the litigation manager for the Pittsburgh office Jackson Lewis P.C. Her practice focuses exclusively on the representation of employers in wage and hour disputes, class and collective actions, and claims of discrimination under Title VII, the Age Discrimination in Employment Act,…