The Arbitration Fairness Act: Unintended Consequences Threaten U.S.

Abstract

Various proposed bills to amend the Federal Arbitration Act (FAA) have been gaining support in the U.S. Congress. The most prominent of the bills introduced is the Arbitration Fairness Act of 2007 introduced in the 110th Congress in the House and the Senate and reintroduced in largely the same form in the 111th Congress in the House of Representatives. The Senate version of the bill was reintroduced in the 111th Congress with significant improvements. The bills’ proponents do not intend the bills to interfere with international arbitration, but the amendments do not distinguish between domestic and international disputes. The proposed Act is intended to render arbitration agreements invalid or unenforceable with respect to consumer, employment or franchise disputes, but the House version as drafted has much broader and unfortunate consequences. This paper reviews the proposed amendments to the FAA in the House version of the bill, their impact on international arbitration in the United States and the effect on U.S. companies, the U.S. legislation and Supreme Court decisions which form the basic legal predicate for international arbitration in the United States, why arbitration is the preferred method for dispute resolution in international matters, the U.S. role in international arbitration, the proposed amendments to the FAA as they relate to consumers, employees and franchises, the proposed amendments to the FAA as they relate to competence-competence and separability, the consequences of the Act’s substantive and procedural changes, questions as to whether the proposed amendments to the FAA implicate any treaty violations by the United States and finally whether the time has come for the enactment of a separate full-fledged federal international arbitration statute and suggest other legislative solutions to minimize unintended consequences.

Keywords: arbitration, Federal Arbitration Act, Congress, Arbitration Fairness Act, legislation, international arbitration, consumer arbitration, employment arbitration, New York Convention, separability, jurisdiction, competence competence

JEL Classification: F21, K20, K29. K49, K41