House Passes Bill Banning Mandatory Arbitration Clauses

WASHINGTON (CN) - The House of Representatives approved a bill Friday that would bar clauses in contracts that force people to go into arbitration if they raise employment, consumer, antitrust or civil rights claims against companies.

Forced arbitration agreements are included in many employment and consumer contracts, often without the knowledge of the people who sign them. These clauses force people to resolve disagreements they might have with a company before an arbitrator, rather than a judge in court.

A 2018 study by the Economic Policy Institute found more than 56% of workers, about 60 million people, have mandatory arbitration clauses in their contracts. The study found the clauses were more common among low-wage workers.

Critics of arbitration say the process is secretive and skewed towards companies, making it harder for consumers or employees to win damages and hold companies accountable. Because the results of arbitration disputes are often not public in the same way as cases heard in courts, forced arbitration also makes it hard for consumers to learn about corporate misconduct, critics argue.

"Using forced arbitration, corporations force victims into secret proceedings where the deck is stacked against them," Representative Hank Johnson, a Georgia Democrat who sponsored the bill, said on the House floor Friday. "Predictably, the end result is the corporation wins and the victim is deprived of justice."

Johnson's legislation would make pre-dispute arbitration clauses unenforceable as applied to employment, civil rights and antitrust claims. It does not apply to arbitration clauses negotiated as part of collective bargaining agreements and still allows parties to go to arbitration voluntarily.

The bill, called the Forced Arbitration Injustice Repeal Act, passed the House 225-186 on Friday morning.

Proponents of arbitration cast it as a valuable alternative to costly litigation, especially for people bringing relatively small claims.

Representative Doug Collins, R-Ga., argued arbitration gives people who cannot afford expensive trial attorneys a chance to be heard. He said outlawing such contracts will force people into class action lawsuits where they stand to gain only small awards.

He argued Congress should have tried to reform the arbitration system rather than taking an ax to the process.

"Let's be honest about what's happening here: you're taking people out of the system, not putting them in," Collins said on the House floor before the vote. "You're not really protecting them, you're actually hurting them."

The White House has threatened to veto the legislation, saying it ignores "the benefits of resolving disputes through arbitration."

"These blanket prohibitions will increase litigation, costs and inefficiency, including by exposing the vast majority of businesses to even more unnecessary litigation," the White House said in a statement of administration policy.

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