March 21, 2022

FAIR Act Moves Forward Despite Potential Harm to Consumers, Small Businesses and Employees

The House of Representatives is expected to consider legislation that would prohibit pre-dispute arbitration agreements from being valid or enforceable if it requires arbitration of an employment, consumer, antitrust or civil rights dispute. The bill could eliminate or reduce remedies for employees and small businesses seeking to settle disputes without costly ligation, ultimately hurting consumers as well.

The Forced Arbitration Injustice Repeal (FAIR) Act was introduced by Rep. Hank Johnson (D-GA) in February 2021 and recently made it out of committee. A companion bill was also introduced in the Senate by Sen. Richard Blumenthal (D-CT) last year but has not yet moved forward.

The renewed interest over the FAIR Act comes just as the U.S. Chamber of Commerce’s Institute for Legal Reform published a study showing that employees and consumers with legal disputes are more likely to prevail in arbitration than in litigation. Between 2014 and 2021, consumers initiated and won 41.7 percent of arbitration that terminated with awards compared to 29.3 percent of litigations that terminated with awards, the study showed. Employees saw similar numbers, with 37.7 percent prevailing in arbitrations that terminated with awards compared to only 10.8 percent that went through litigation.

Further, the study found that employees and consumers typically were awarded more money through arbitration than litigation. During the same seven-year period, consumers who prevailed in arbitration were awarded an average of $79,945 ($20,356 median) compared to an average of $71,354 ($6,669 median) in litigation. Employees won an average of $444,134 ($142,332) in arbitration versus $407,678 ($68,965 median) in arbitration. Arbitration was also usually faster to resolve than litigation, with consumers that prevailed spending an average of 321 days from initiation to termination of their claim and employees spending an average of 659 days. Meanwhile, consumers spent an average of 439 to resolve litigation while employees spent 715 days.

With possible legislative action pending, a coalition of business organizations sent a letter to members of the U.S. House of Representatives on March 15 urging them to vote against the proposal. “The only clear beneficiaries of broadly eliminating cost-effective and fair arbitration as a viable way to resolve disputes are class action lawyers, who would directly benefit from increased class action litigation,” the letter said. “Studies have shown that class action settlements frequently provide, at best, a very low return to class members while class action attorneys take in millions of dollars. Their gain would come at the expense of consumers, small businesses, and employees, many of whom are not even eligible to participate in class action litigation. In addition, because their claims are too small to attract individual legal representation, they would be left without a remedy altogether if arbitration were eliminated.”