Arbitration Fairness Act - A Fatal Linkage for Employers

The Arbitration Fairness Act would eliminate pre-dispute arbitration agreements in consumer, franchise and employee matters. I have long argued that because everyone (including me) does not like them snuck into the fine print of consumer agreements that employers were going to be in trouble unless they could break the linkage between employment and consumer agreements.

I never really had a good short rationale as to why there was a major difference, although clearly there is. Fortunately, the true distinction is highlighted in an article by Richard M. Alderman of the University of Houston Law Center, Why We Really Need the Arbitration Fairness Act: It's All About Separation of Powers. Here's the abstract of Professor Alderman's article:

Congress is currently considering the Arbitration Fairness Act, which prohibits pre-dispute mandatory arbitration clauses in consumer contracts. This article reviews the use of consumer arbitration to demonstrate that in consumer cases arbitration is used to eliminate consumer disputes, not to provide an efficient alternative forum. More importantly, it is suggested that the widespread, in fact near universal, use of consumer arbitration conflicts with the core American belief in separation of powers. Through arbitration, business can effectively divorce itself from the civil justice system, eliminating the judicial branch from consumer disputes. The only way to reverse this dangerous trend is through the prohibition contained in the Arbitration Fairness Act.

I emphasized the sentence that points out the key difference between consumer agreements and employment situations. Whatever you might say about mandatory arbitration of employment disputes, it is not fair to say that they are designed to prevent claims from being heard.

I personally have handled more than twenty-five such matters which went all the way to hearing, and although the percentage of arbitration cases that go to hearing as opposed to lawsuits that goes to trial, is considerably higher, I have handled a lot more claims that were in arbitration that were resolved somewhere along the way before going to hearing.

I think that is an important distinction between the two, and a good rationale for why they should be treated differently. For those employers who have arbitration programs, it is time to act and start making this distinction and others to your legislators. My view is that is the only way employment arbitration is going to survive.