Leahy Bill in U.S. Senate Could Kill Key Provision in Texas Nonsubscriber ERISA Plans

A bill [S. 2506] introduced on February 4, 2016, by Senator Patrick Leahy (D-VT), would, if passed into law, appear to invalidate a core provision found in most Texas workers’ compensation “employee benefit plans.” The Leahy bill, known as “Restoring Statutory Rights Act,” would amend the Federal Arbitration Act so as to invalidate arbitration agreements between parties in many contracts or transactions unless the written agreement to arbitrate is entered into by both parties after the claim has arisen. The Texas comp plans, put in place by some large Texas employers, usually contain binding arbitration clauses that prohibit an injured worker from litigating his or her negligence claim in state court (recall that a Texas “nonsubscribing employer” does not enjoy the exclusive remedy defense). At least from my first reading of the bill, compulsory arbitration provisions contained in Texas comp plans would come under the ax.

ERISA Plans Not Directly Targeted

It should be noted that the Leahy bill does not directly target Texas nonsubscriber ERISA plans. According to a press release from Senator Leahy’s office, the bill was actually in response to a series of New York Times articles published late last year that suggested arbitration clauses have been unfairly used in a host of settings, particularly consumer financial services contracts and in some employment agreements.

The bill’s lead co-sponsor is Senator Al Franken (D. Minn.), who is the primary author of another arbitration bill, Arbitration Fairness Act, introduced last year. Franken added:

“Sadly, when big corporations insulate themselves from liability through ‘forced arbitration’ clauses—which are slipped into things like credit card agreements and employment agreements—they stack the deck against Americans who are trying to exercise that fundamental right. For years, I’ve been fighting to re-open the courtroom doors to consumers and workers by ending forced arbitration. Our legislation is commonsense reform that will help to restore Americans’ right to challenge unfair practices by corporations, and it needs to be passed into law.”

Will Leahy Bill Become Law?

Some conservatives argue that Leahy’s bill has no greater chance of passing than Franken’s did last year. Nevertheless, it does show that arbitration clauses are on the radar screens of some national politicians.