Mandatory Arbitration Takes Another Huge Hit As Obama Signs New Law

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When a former employee of defence contractor Kellogg Brown & Root sued the company after reporting she was raped by co-workers in Iraq, company owner Halliburton tried to force the case into arbitration.

The woman, Jaime Lee Jones, has been “the public face for arbitration opponents” ever since. 

President Barack Obama signed a bill into law on Saturday that forbids most military contractors from enforcing mandatory arbitration clauses in employment provisions, The National Law Journal reported.

The arbitration provision is included in the 2009-2010 spending bill for the U.S. Department of defence.

There are some exceptions — the law does not apply to contracts and subcontracts with less than $1 million and the defence secretary can grant a waiver if doing so is “necessary to avoid harm to national security interests in the United States.” The waiver will be public.

Mandatory arbitration clauses, long a target for consumer-rights activists, have been in the spotlight this year. 

In June, Obama’s Financial Regulatory Reform Plan suggested one of its newly-created agency would have broad authority to review the propriety of mandatory arbitration agreements. In July, lawsuits brought against National Arbitration Forum for allegedly favouring the companies over consumers resulted in a quick agreement by the NAF to no longer hear disputes between credit card companies and their clients. The next week the American Arbitration Association voluntarily agreed to do the same until further guidelines are developed.

Last month, a similar lawsuit against bank credit card units resulted in J.P. Morgan Chase agreeing to drop arbitration clauses from it credit-card agreements.

Obviously, there is a difference between the consumer-related arbitration clauses and those included in employment contracts, but when the most prominent arbitration provisions — those included in credit cards — seem on their way to extinction over only one calendar year, larger changes could be afoot.

Nothing, of course, will ever prevent contracting parties to agree to arbitration; the focus of these arbitration attacks are on contracts where the terms are effectively non-negotiable for one of the parties.  

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