Minnesota Sen. Al Franken and Georgia Rep. Hank Johnson have reintroduced a bill, the Arbitration Fairness Act, that would preclude companies and institutions from preemptively forcing employees, customers and others to arbitrate antitrust suits, civil rights claims and other consumer-oriented disputes.
Despite the fact that Congress initially intended the Federal Arbitration Act to only cover commercial arbitration agreements between entities with similar contractual bargaining power, in recent years the U.S. Supreme Court has expanded breadth of the FAA.
According to the proposed legislation, an agreement to arbitrate employment, consumer, civil rights or antitrust claims would have to be reached after the dispute has arisen. Collective bargaining and business-to-business agreements would be exempt.
Not surprisingly, the foregoing once again demonstrates a long-standing consumer-based opposition to arbitration as an alternative to litigation.
The use of arbitration clauses has increased exponentially by companies since 2011, when the U.S. Supreme Court affirmed that it was perfectly acceptable for companies to take away a consumer’s right to sue or their ability to join other wronged consumers in a class action case by inserting a clear and conspicuous paragraph or two of text inside a contract.
A recent Consumer Financial Protection Bureau report found that 75% of consumers surveyed did not know if they were subject to an arbitration clause in their credit card contract. And among consumers whose contract included an arbitration clause, fewer than 7% recognized that they could not sue their credit card issuer in court.
If passed, the AFA would have a clear impact on marketers’ ability to avoid class actions and significantly limit their liability in contracts with consumers. Online marketers and those involved in eCommerce often implement binding arbitration provisions to reduce their potential exposure to class action lawsuits brought by consumers. The proposed legislation, however, would ban those provisions and only allow the parties to agree to arbitration after the dispute arises.
Online marketers go to great lengths to ensure that material terms such as mandatory arbitration and class action waiver clauses will be enforceable if challenged by conspicuously displaying both and requiring customers making purchases online to unequivocally assent to the relevant provisions. The AFA would have wide-reaching implications for marketers by exposing them to an increased risk of class action litigation.
Without a doubt, prohibiting such clauses would result in a flood of frivolous litigation by plaintiffs’ attorneys seeking coercive settlements. Given the high stakes and serious ramifications of the AFA, marketers would be wise to track its status while continuing to prepare against litigation risks through unavoidable arbitration clauses in consumer contracts.
This matter should be of interest to any company or individual engaging in eCommerce, including corporate counsel. If you are interested in discussing the design and implementation of legally enforceable website agreements, please contact the author at (212) 756-8777, rnewman@hinchnewman.com and www.hinchnewman.com.
Richard B. Newman is a leading FTC Compliance Lawyer at Hinch Newman LLP specializing in advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state attorneys general, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.
Information conveyed in this article is provided for information purposes only and does not constitute, nor should it be relied upon as legal advice. This information is not intended to substitute for obtaining legal advice from an attorney. No person should act or rely on any information in this article without seeking the advice of an attorney.
