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The Senate Weighs in With Its Own Arbitration Fairness Act

May 7th, 2009 Arbitrability, Authority of Arbitrators, Legislative Developments, United States Supreme Court 1 Comment » By Philip J. Loree Jr.

On April 29 — a/k/a “Arbitration Fairness Day” – – Senator Russ Feingold (D-WI) introduced the Senate’s version of the Arbitration Fairness Act of 2009 (S. 931).  The Senate’s version  tracks the House version in many respects, but there are some important differences between the two. 

The Senate Arbitration Fairness Act adds a Chapter 4 to the Federal Arbitration Act, rather than amending Section 2 of Chapter 1.  This Proposed Chapter 4 consists of two sections:  Section 401, entitled “Definitions”; and Section 402, entitled “Validity and Enforceability.”  Proposed Section 402(a) states:  “In General – Notwithstanding any other provision of this title, no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment, consumer, franchise, or civil rights dispute.”  Proposed Section 402(b) provides: 

(1)  IN GENERAL – An issue as to whether this chapter applies to an arbitration agreement shall be determined under Federal law.  The applicability of this chapter to an agreement to arbitrate and the validity and enforceability of an agreement to arbitrate to which this chapter applies shall be determined by the court, rather than the arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement. 

(2)  COLLECTIVE BARGAINING AGREEMENTS – Nothing in this chapter shall apply to any arbitration provision in a contract between an employer and a labor organization or between labor organizations, except that no such arbitration provision shall have the effect of waiving the right of an employee to seek judicial enforcement of a right arising under a provision of the Constitution of the United States, a State constitution, or a Federal or State statute, or public policy arising therefrom. 

There are at least four aspects of the Senate Arbitration Fairness Act that warrant mention.  First, unlike the drafters of the House Arbitration Fairness Act, the Senate version’s drafters used clear and unambiguous language to make the Act’s scope easy to discern.  As readers of our multi-post series, “What Does the Arbitration Fairness Act of 2009 Have to Say About Commercial and Industry Arbitration Involving Sophisticated Parties” (available here) (and our guest-blog article in Disputing (here))  may remember, our principal criticism of the House version is that the drafters did not clearly state their intent, and as a consequence, the House Arbitration Fairness Act’s application to domestic and international commercial and industry arbitration involving sophisticated parties was uncertain. 

Second, the Senate version of the bill abolishes:  (a) the severability doctrine; and (b) the rule allowing arbitrators to decide arbitrability questions when the parties clearly and unmistakably so agree, with the arbitrators’ decision subject to the same standards of review applicable to all other arbitration awards (the “Own Jurisdiction Rule”), but does so only where a party claims that a predispute agreement allegedly requires arbitration of a consumer, employment, franchise, or civil rights dispute or where the question is whether such an agreement is valid and enforceable.   Thus, the Senate version does not abrogate these doctrines in commercial and industry arbitration involving only sophisticated, commercial entities. 

Third, the Senate version of the bill is broader than the House version in that it clearly and unambiguously prohibits predispute arbitration agreements that require arbitration of consumer, employment, franchise and civil rights disputes that fall not only under Proposed Chapter 4, but also under Chapters 2 and 3, which implement the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (a/k/a the “New York Convention”), and the Inter-American Convention on International Commercial Arbitration (a/k/a the “Panama Convention”).  Proposed Section 402(b), entitled Technical and Conforming Amendments, amends FAA Sections 208 and 307 to provide “This chapter applies to the extent that this chapter is not in conflict with chapter 4.”  Readers of our series on the House version of the Arbitration Fairness Act may recall that the House Arbitration Fairness Act would probably not be construed to apply to arbitration agreements falling under Chapters 2 and 3 of the Convention, although the matter is not entirely free from doubt. 

Fourth, the Senate version of the bill is broader than the House version as respects arbitration clauses in collective bargaining agreements.  The House version exempts collective bargaining agreements from its scope, whereas the Senate version exempts collective bargaining agreements with the proviso that “no such arbitration provision shall have the effect of waiving the right of an employee to seek judicial enforcement of a right arising under a provision of the Constitution of the United States, a State constitution, or a Federal or State statute, or public policy arising therefrom.”  This amendment was designed to abrogate the United States Supreme Court’s recent decision in on 14 Penn Plaza LLC v. Pyett, ___ U.S. ___ (2009) (Thomas, J.) (blogged here and here), in which the Court held that an arbitration provision clearly and unmistakably providing for arbitration of an Age Discrimination in Employment Act (“ADEA”) claim was enforceable under federal law. 

We shall keep readers apprised of developments as and when they occur.  .  .  .

         

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One Response to “The Senate Weighs in With Its Own Arbitration Fairness Act”

  1. […] Last week, the U.S. Senate introduced its own version of the “Arbitration Fairness Act of 2009″ (H.R. 1020, status). The new bill ( S. 931, status), also titled “Arbitration Fairness Act of 2009,”  is similar, but not identical to H.R. 1020. The Senate bill is discussed in detail by Philip J. Loree Jr. in The Senate Weights in With Its Own Arbitration Fairness Act. […]