President Trump recently signed into law a bill that allows financial companies to unilaterally compel consumers to arbitrate instead of litigate their claims. The law was passed in response to rules issued by President Obama’s administration under the Dodd-Frank Wall Street Reform and Consumer Protection Act that made it easier for consumers to avoid arbitration. Arbitration is a mechanism for parties to resolve their disputes without going to the courts. Arbitration’s proponents claim the process is designed to more efficiently resolve disputes, but at the cost of preventing consumers and employees from pooling their resources and pursuing their claims as a group through class actions.
In the employment context, employees are often forced to sign arbitration agreements with little opportunity to review the agreement and no opportunity to negotiate the agreement. As Republican Senator Chuck Grassley, who voted for this recent bill, has said in the past, “[W]hen mandatory binding arbitration is forced upon a party, for example when it is placed in a boiler-plate agreement, it deprives the weaker party the opportunity to elect another forum.” A Senate Committee report recognized that when arbitration occurs between a large entity, likely to have many legal issues, and a small entity with few legal issues, “the impartiality of arbitration providers may be affected by the knowledge that the [large entity or employer] may be likely to bring them repeat business but the [small entity or employee] is not.” Many arbitrators also began their careers representing employers against employees.
There has been a trend for the Courts to rule that arbitration clauses are fundamentally at odds with the rights afforded to employees under the Fair Labor Standards Act, which ensures that employees are paid properly. This recently passed law in the financial consumer context shows though that even if the Courts continue to side with employees to protect their rights under the Fair Labor Standards Act, Congress can pass a law to undue those rights.
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