FAA Loom Large in Arbitration Cases

FAA Looms Large in Arbitration Cases
by the New Jersey Law Journal Editorial Board

Recent news reports indicate that two bills, S-3541 and A-5287, are making their way through our state Legislature with the intent of restricting an employer’s ability to include pre-dispute arbitration provisions in employment contracts. We suggest that this is a fraught effort, if for no other reason than the preemption effect of the Federal Arbitration Act on state attempts to impose conditions or limitations on arbitration not applicable to other contracts and inconsistent with the FAA. State statutes and case law restricting arbitration in nursing home disputes and class-action waivers have been overturned on preemption grounds, based on Article VI of the US Constitution, where interstate commerce is concerned. It is difficult to discern ways to avoid FAA preemption in the employment context also.

Two less problematic employee-protective scenarios exist, though.

In the first, the state Legislature could require employers to include, or be deemed to include, procedural protections for employment arbitration, such as limitations on fee shifting, employer responsibility for arbitration fees, and discovery or confidentiality rights. Such protective provisions are in the employment rules of major arbitration providers, which also pre-clear such contracts, and many employers include employee-protective provisions directly or by reference to such forum rules. The Legislature could guarantee the protections regardless of the forum, and regulations could clarify the precise protections required.

The second is federal legislation. Our attorney general has joined a Feb. 12 letter from the attorneys general of all 50 states, the District of Columbia and various territories to congressional leaders supporting federal restrictions on pre-dispute agreements for arbitration of sexual harassment and discrimination claims. Federal legislation avoids the FAA preemption problem; a federal statute could specifically provide that it amended or superseded the FAA in the relevant degree, or be deemed to do so by implication. The Dodd-Frank financial legislation did precisely that regarding arbitration of matters within the jurisdiction of the Consumer Finance Protection Bureau; it then promulgated consumer-protective measures.

Of course, even “bipartisan” legislation faces an uphill battle in the current Congress and  administration, both of which have reversed restrictions on arbitration imposed by the prior administration. The U.S. Supreme Court is now considering appeals concerning NLRB restrictions on class actions and arbitration in certain labor agreements, and the solicitor general has opposed such restrictions. Nevertheless, public sentiment urged on by the #metoo movement may lead to sufficient support in in both houses of Congress and force an administration into signing, or at least not vetoing, such legislation.

If and when a federal bill emerges for committee mark-up, we reserve the ability to comment on its specific provisions. However, we applaud our attorney general for joining the effort and encourage a full presentation of all positions as such legislation moves forward.