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House-Approved Bill Preventing 'Forced' Arbitration Could Impact Retirement Plans

Legislation

Legislation approved recently by the U.S. House of Representatives would restrict the use of pre-dispute arbitration agreements – potentially including their use in workplace retirement plans.   

Many retirement plans include provisions requiring employees and plan participants to arbitrate any disagreements they may have with the employer or plan fiduciaries before they could take a dispute to court to seek resolution. However, the Forced Arbitration Injustice Repeal (FAIR) Act (H.R. 1423) approved Sept. 20 by the U.S. House of Representatives would prohibit pre-dispute arbitration agreements from being valid or enforceable if they require arbitration of an employment, consumer, antitrust or civil rights dispute. As such, it appears that the legislation, if enacted, would apply broadly to employee benefit plans, including DC and DB plans. 

H.R. 1423, which was approved by a near party-line vote of 225-186, would also prohibit agreements and practices that interfere with the right of individuals, workers and small businesses to participate in a joint, class or collective action related to such disputes. 

The legislation was sponsored by Rep. Hank Johnson (D-GA), who has introduced similar bills dealing with forced arbitration clauses in every Congress since he first took office in 2007.

“Forced arbitration clauses have permeated American life in recent decades. They’ve seeped into just about every nook and cranny of our lives, including cell phone contracts, medical bills, employee handbooks, credit cards, nursing home contracts – you name it,” Johnson said in a statement following approval of the FAIR Act. “This is just another tool for powerful corporate interests to avoid accountability.”  

Johnson’s bill also specifies that it does not apply to any arbitration provision between an employee and a labor organization or between labor organizations, except that no such arbitration provision shall have the effect of waiving the right of a worker to seek judicial enforcement of a right. It also does not end pre-dispute arbitration in business-to-business agreements. 

During debate on the bill, the House approved an amendment by Rep. Lizzie Fletcher (D-TX) clarifying that nothing in the act shall be construed to prohibit the use of arbitration on a voluntary basis when consent is given after the dispute arises.

Recent Litigation 

The timing of House passage of the legislation is noteworthy, given recent litigation surrounding the issue. 

An August 2019 ruling by a three-judge panel of the 9th U.S. Circuit Court of Appeals reversed a lower court decision (Dorman v. Charles Schwab Corp.) that had prevented the Schwab Retirement Savings and Investment Plan from enforcing an arbitration clause compelling individual arbitration in an ERISA action filed by a former participant in the plan. In so doing, the 9th Circuit revisited its 1984 holding in Amaro v. Continental Can Co. in which it held that ERISA claims were not arbitrable. The 9th Circuit panel concluded that – considering intervening Supreme Court case law finding that arbitrators are competent to interpret and apply federal statutes, including the high court’s ruling in American Express Co. v. Italian Colors Restaurant – its holding in Amaro is “no longer good law.” 

Arbitration clauses have also been raised as a preemption to litigation in other cases, including at least two recent university 403(b) fee lawsuits. 

H.R. 1423 now moves to the Senate, where companion legislation (S. 610) has been introduced by Sen. Richard Blumenthal (D-CT), along with 34 cosponsors. 

While the legislation is not likely to be acted on in the Republican-controlled Senate during this session of Congress, it’s worth keeping an eye on this bill longer-term. If the Democrats gain control of the Senate following the 2020 elections, this issue could gain momentum.