On July 15, 2008, the U.S. House Judiciary Subcommittee on Commercial and Administrative Law approved three bills that would prohibit the use of binding arbitration clauses in several types of routine consumer, business and employment contracts. These proposed, sweeping changes in the use of arbitration in commercial disputes would have broad impact on businesses and fundamentally alter the risk and cost structure of routine business dispute resolution. Companies that rely on arbitration clauses as a way to limit litigation costs and avoid runaway jury awards may no longer be able to do so.
Sponsored by U.S. Rep. Hank Johnson (D-Ga.), the "Arbitration Fairness Act of 2007," H.R. 3010, is the broadest piece of legislation offered. It would bar pre-dispute binding arbitration clauses in certain consumer, employment and franchise contracts, as well as for disputes arising under statutes aimed at protecting civil rights or regulating transactions between parties without equal bargaining power. Senator Russ Feingold (D-Wis.) authored companion legislation, S. 1782, which is expected to be marked up by the full Judiciary Committee.
The "Fairness in Nursing Home Arbitration Act of 2008," H.R. 6126, pertains to the use of pre-dispute arbitration agreements entered into at any time during or after the admission process. The bill would prohibit nursing homes from requiring residents to forego litigation upon admission. Any agreement made between homes and residents or their families to arbitrate a dispute would be rendered invalid if the agreement were made before the dispute occurred. The bill cleared the House Judiciary Committee on July 30; the Senate version of the legislation (S. 2838) awaits consideration by the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights.
The third measure, the "Automobile Arbitration Fairness Act of 2008," H.R. 5312, would bar auto dealers from requiring mandatory arbitration. The bill would require that when settling disputes with dealers, all buyers must be given the option of pursuing arbitration or going to court.