Recent years have not been kind to the public perception of arbitration, particularly arbitration involving consumer and employment disputes. Most of the criticism can be traced to the Federal Arbitration Act (FAA), which makes arbitration agreements enforceable generally, without much guidance on the process itself. Despite proposed legislation in Congress each year for more than ten years, Congress has never come close to passing a bill that would modify or displace the FAA.
Given Congressional inaction, federal agencies are now trying to regulate arbitration within their own areas of expertise. Specifically, some agencies have prohibited the use of arbitration in private contracts falling under the agency’s regulatory authority. For instance, the Department of Education promulgated a rule prohibiting banks from including arbitration agreements in loans issued under the Direct Loan Program. Similarly, the Centers for Medicare & Medicaid Services promulgated a rule prohibiting long-term care facilities from conditioning admission to a facility based on failure to sign an arbitration agreement.
Are these types of restrictions valid given the broad reach of the FAA? The Supreme Court has never answered this question. My new article, Creating a Framework for Examining Federal Agency Rules Impacting Arbitration, forthcoming in the Washington University Journal of Law & Policy, attempts to answer this question.
Since 1985, the analysis for determining how to resolve a conflict between the FAA and a federal statute has been clear — courts should consider whether Congress evidenced a “contrary congressional command” that arbitration agreements may not be enforced under the statute. My new article posits that the “contrary congressional command” test be extended to cases involving agency action. Under this new test, a court should examine an agency’s enabling legislation to determine if it conflicts with the FAA. If so, then the agency regulation cannot stand. If not, then the agency regulation is enforceable, provided the regulation was otherwise properly promulgated.
The Article compares legislation, such as the Frank-Dodd Act, which specifically contemplates agency action regarding arbitration with the William D. Ford Federal Direct Loan Program legislation, which is silent on the issue, and predicts how the courts will treat agency actions under these statutes. Federal agencies are in a unique position to advance arbitration within specific areas, but significant legal questions remain unanswered in this area.
To read the paper, please see: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3622740