"Arbitration Fairness Act" Still Looming
The "Arbitration Fairness Act of 2007," which caused a flurry of criticism and commentary when it was introduced in July 2007, is still alive and continuing its journey through committee. The Act would amend several provisions of the Federal Arbitration Act, making sweeping changes to the enforceability of arbitration provisions.
The Act would expressly invalidate arbitration agreements—retroactively—in employment, consumer or franchise disputes and in any "dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power." Specifically, in the context of a "consumer dispute," broadly defined, the Act would make a "predispute arbitration agreement" invalid and unenforceable. Significantly, the Act would also expressly assign the task of determining the enforceability of arbitration agreements to courts under federal law, not to arbitrators, contrary to a long line of federal cases holding the opposite. Federal courts have long held that attacks on the validity of an entire contract, as distinct from attacks aimed at the arbitration clause, are to be determined by the arbitrator. The Act provides that its "effective date" would be the date of enactment, but also provides that it "shall apply with respect to any dispute or claim that arises on or after such date." This effectively makes the Act retroactive, since it would invalidate predispute arbitration agreements that a party sought to enforce in certain disputes after the Act's effective date.
The Consumer Bankers Association has issued a public letter urging opposition of the Act.
The Act would expressly invalidate arbitration agreements—retroactively—in employment, consumer or franchise disputes and in any "dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power." Specifically, in the context of a "consumer dispute," broadly defined, the Act would make a "predispute arbitration agreement" invalid and unenforceable. Significantly, the Act would also expressly assign the task of determining the enforceability of arbitration agreements to courts under federal law, not to arbitrators, contrary to a long line of federal cases holding the opposite. Federal courts have long held that attacks on the validity of an entire contract, as distinct from attacks aimed at the arbitration clause, are to be determined by the arbitrator. The Act provides that its "effective date" would be the date of enactment, but also provides that it "shall apply with respect to any dispute or claim that arises on or after such date." This effectively makes the Act retroactive, since it would invalidate predispute arbitration agreements that a party sought to enforce in certain disputes after the Act's effective date.
The Consumer Bankers Association has issued a public letter urging opposition of the Act.
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