Arbitration Fairness Act: Franchisees Pushing Congress To Pass Bill

Look at any franchise agreement, and you are likely to find a mandatory arbitration clause. This clause states that in the event of a dispute, the parties agree …

Look at any franchise agreement, and you are likely to find a mandatory arbitration clause. This clause states that in the event of a dispute, the parties agree to arbitration — forgoing their right to a  trial. Many franchisees feel that this unfairly favors the franchisors, and now they are fighting back. If the Arbitration Fairness Act is passed it would remove the mandatory part from the arbitration clause — allowing the parties to choose whether they want to go to arbitration or have a trial. For more on this, read the following article from Blue MauMau.

Former franchise owner Deborah Williams and consumer advocates lobbied Capitol Hill on Wednesday, April 29 to ask that Congress pass the Arbitration Fairness Act, a pending bill that bans mandatory arbitration clauses in franchise and other contracts.  It was part of an event designated "Arbitration Fairness Day".

The former owner of a Coffee Beanery shop and members from consumer groups such as Fair Arbitration Now and Public Citizen attended meetings at the Hill to persuade that the 84-year-old arbitration system has become corrupted by big business interests to the detriment of consumers and small businesspersons. Franchise owners often sign contracts that mandates that they seek arbitration court in the franchisor’s home state if there are any grievances.

The bipartisan Arbitration Fairness Act (H.R. 1020) had already been introduced by Rep. Hank Johnson (D-Ga.) in the House of Representatives and was introduced (S.931) in the Senate by Sen. Russ Feingold (D-Wis.) on April 29. The measure is meant to ensure that the decision to arbitrate is made voluntarily.  The bill aims to make pre-dispute agreements requiring arbitration for any employment, consumer, franchise, or civil rights disputes unenforceable to allow a choice between arbitration and the civil court system.

Franchisees and consumer advocates complain that there is little opportunity to negotiate the terms of an arbitration clause in contracts. They find themselves having to choose either to accept a mandatory arbitration clause or to forgo securing employment or needed goods and services. Critics of arbitration say that arbitration courts create a dual legal system in which arbitration rulings are rarely held accountable to U.S. law. One such an example is in a recent Supreme Court ruling (14 Penn Plaza v. Pyett) that declared that arbitration provisions can actually waived an employee’s right to enforce employment discrimination laws.

In a letter to lawmakers, consumer advocacy group Public Citizen wrote that the new bill’s "sole aim is to end the unscrupulous business practice of forcing consumers and employees into biased arbitrations by binding them long before any disputes arise.”

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The Coalition of Franchisee Associations, a trade lobbyist for franchise owners, has designated the Arbitration Fairness Act as one of its top bills to support, according to a recent article by monthly trade journal Franchise Times. 

Bob Purvin, chair of the American Association of Franchisees and Dealers empathizes with the plight of franchise owners who must arbitrate, even though they would prefer to go through the court system. But the AAFD doesn’t lobby. However, Purvin says that his organization came out early in verbal support of the Arbitration Fairness Act. “We encourage our member groups in getting behind it,” he says.

But the sole franchisee in attendance at the introduction of the bill, Deborah Williams, looked unsupported by fellow franchisees on Wednesday.

She tells Blue MauMau how tough this path has been: “This has been the fight of my life. I hope the passing of this bill will help level the playing field. Williams adds, "This bill may be the very protection needed should franchisees ever fall prey to a predatory franchisor." 

It now looks like the AAFD may be looking at changing direction when it comes to staying away from lobbying efforts. “The AAFD has been deficient in funding active lobbying efforts, and it is something I would like to see changed,” declares Purvin.

Consumer advocates say there is widespread support across party lines for the Arbitration Fairness Act. They cite a recent poll from Lake Research Partners that shows that some six in ten voters support the act and that 59 percent of likely voters oppose the use of mandatory binding arbitration clauses like those found in franchise contracts and credit card agreements. Lake Research Partners’ President, Celinda Lake, concludes of the poll, “The public supports the Arbitration Fairness Act because equal justice under the law is a core American value.”

But Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform says the consumer groups and skewed pollsters have their facts wrong. "In a bipartisan survey released in 2008,” she cites, “71 percent of likely voters opposed efforts by Congress to remove arbitration agreements from consumer contracts, and 82 percent preferred arbitration to litigation as a means to settle a serious dispute with a company.”

Rickard emphasizes that the Arbitration Fairness Act could nullify millions of existing contracts, causing widespread uncertainty of their recourse should a dispute arise among consumers, employees and franchised business owners.

The International Franchise Association, a trade lobbyist representing largely franchisors, is stepping up its efforts to oppose the bill.

“I hope that franchisees stop drinking the [franchisor] Kool Aid, take a look around them and support this [act] as a way to help protect themselves,” says Williams.

This article has been reposted from Blue Maumau. View the article on Blue Maumau’s small business and franchise news website here.

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