Proposed Federal Legislation May Impact Arbitration Rules
Arbitration rules have increasingly come under scrutiny by various state legislatures and courts. Oftentimes changes in state arbitration laws intended for other parts of the economy have found their way into the construction industry, with mixed results. Last Friday Andrew Ness of Howrey LLP posted in the kluwerconstructionblog an insightful piece on a consumer protection bill recently proposed in the House of Representatives.
Rather suddenly, a substantial backlash against mandatory arbitration has appeared on the scene. One of the clearest indicators is the proposed Arbitration Fairness Act (H.R. 1020) that was introduced in the House of Representatives in February of 2009, and is still very much in play. While the anger is not directed at construction dispute arbitration, the concern is that commercial arbitration will end up being limited in important ways, as well as mandatory arbitration schemes where the use of arbitration is seen as one-sided and unfair.
The bill is intended to limit the reach of the Arbitration Act including the authority of arbitrators in situations where individuals are in unfair bargaining positions, e.g., employer-employee relations, personal credit issues, and individual real estate transactions. Mr. Ness expresses concern about the potential application of these limitations to the construction industry.
While the construction industry is not specifically targeted by the AFA, concerns have arisen that subcontractors and suppliers, for example, may attempt to claim unequal bargaining power when confronted with standard arbitration clauses contained in many form subcontracts. As a result, those concerned about cost effective and efficient dispute resolution in the construction industry, both within the U.S. and internationally, are following the AFA’s progress through Congress closely.
My thanks to Mr. Ness for making us aware of the proposed Arbitration Fairness Act pending in Washington, D.C. and its potential impact on the construction industry. Arbitration provisions are bargained for rights in construction contracts.. They are intended to help parties resolve construction claims in an efficient manner. Legislation that potentially impacts contractual rights creates uncertainty which expands the risks associated with construction contracts. Therefore, I echo the warning of Mr. Ness's prescient post: those concerned with cost effective and efficient dispute resolution should follow this proposed legislation closely.
