Binding arbitration clauses are increasingly being inserted by businesses when entering into contacts with other parties. These clauses, which often provide businesses with an advantage and go unnoticed by the signer, drastically limit the legal options available to the signing party. The Arbitration Fairness Act bans mandatory binding arbitration clauses in consumer and employment contracts, including franchise agreements. Specifically acknowledging the disparate economic power between the parties, the bill invalidates the enforceability of pre-dispute arbitration agreements in franchise disputes.

History: The Arbitration Fairness Act (H.R. 1020) was introduced by Representative Henry “Hank” Johnson (D-GA) in March, 2009 and currently has 99 co-sponsors. Its Senate companion bill (S. 931) is sponsored by Senator Russ Feingold (D-WI) and has 11 co-sponsors. While the bill has strong opponents, including the International Franchise Association (IFA) and the U.S. Chamber of Commerce, there has been a strong lobby by franchisors to specifically have the franchise provision removed.

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Talking Points:
• The Arbitration Fairness Act protects franchisees from having binding arbitration imposed as their only means of dispute resolution
•  Binding arbitration clauses most often benefit franchisors. Generally, franchisors draft the contracts, select and pay the arbiters (who then have a financial incentive to rule in their favor) and determine the venue for arbitration. 
• Binding arbitration clauses are often buried in the fine print of franchise agreements; franchisees are left unaware that their rights have been taken away until a dispute arises.
• Franchisees are often forced into signing binding arbitration clauses as a condition of their contract; if they don’t sign, they cannot start running their businesses.