Restrictions on the Use of Mandatory Arbitration Agreements: What You Need to Know
Mandatory arbitration agreements have become a common practice in many industries, from healthcare to finance. These agreements require individuals to resolve any legal disputes with a company through arbitration, rather than going to court. While companies argue that arbitration is a faster and more cost-effective way to resolve disputes, critics claim that these agreements restrict individual rights and protect companies from accountability. In recent years, there has been a push to restrict the use of mandatory arbitration agreements, and here`s what you need to know.
The Federal Arbitration Act
The Federal Arbitration Act (FAA) is a federal law that governs arbitration agreements. It was passed in 1925, but it wasn`t until the 1980s and 1990s that courts began to interpret the FAA as favoring arbitration over litigation. Today, the FAA is used by companies to enforce mandatory arbitration agreements in many circumstances.
Restrictions on Mandatory Arbitration Agreements
Despite the FAA`s favoring of arbitration, there have been recent efforts to restrict the use of mandatory arbitration agreements. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed, which restricted the use of mandatory arbitration agreements in the financial industry. The act prohibits mandatory arbitration agreements in residential mortgages and prohibits arbitration agreements that prevent class action lawsuits related to consumer finance products and services.
In 2019, the Forced Arbitration Injustice Repeal (FAIR) Act was introduced in Congress. The act seeks to ban mandatory arbitration agreements in employment, consumer, antitrust, and civil rights cases. The act would also invalidate any existing mandatory arbitration agreements in these areas.
In addition to federal efforts, some states have also taken action to restrict the use of mandatory arbitration agreements. California, for example, has passed legislation that prohibits mandatory arbitration agreements in employment contracts.
Benefits and Drawbacks of Mandatory Arbitration Agreements
While mandatory arbitration agreements have their benefits, such as speed and cost-effectiveness, they also have drawbacks. Critics argue that mandatory arbitration agreements restrict individual rights and protect companies from accountability. Critics also argue that mandatory arbitration agreements prevent individuals from joining together in class action lawsuits, which can be more effective than individual lawsuits.
In conclusion, while the FAA favors arbitration over litigation, there have been recent efforts to restrict the use of mandatory arbitration agreements. The Dodd-Frank Act and the FAIR Act seek to limit the use of mandatory arbitration agreements in certain industries and cases. While there are benefits to arbitration, there are also drawbacks, and it will be interesting to see how the legal landscape regarding mandatory arbitration agreements evolves in the coming years.
