Last month, a House bill known as H.R. 3010 and Senate Bill 1782 (both generally known as the “Arbitration Fairness Act of 2007”) started moving through the judiciary committees on their way to further action by Congress. These bills would seek, among other things, to void all arbitration agreements related to franchise disputes. A “franchise dispute” is defined in both bills to include disputes regarding franchise sales, operations, and even the franchise fee itself. These bills are an attempt by legislators to circumvent established case law that have uniformly enforced arbitration agreements in the areas of employee disputes and consumer purchases.
The impact of this legislation is considerable. New Jersey courts, like several other states, have held that franchise agreement provisions providing for out-of-state arbitrations are enforceable. See Allen v. World Inspection Network, Int’l, Inc., 389 N.J.Super.115, 911 A.2d 484 (App. Div. 2006). Previously, the New Jersey Supreme Court held that forum-selection clauses in franchise agreements are presumptively invalid, and should not be enforced. Kubis & Perszyk Assocs. v. Sun Microsystems, 146 N.J. 176 (1996). However, New Jersey courts (as in other states) have distinguished arbitration provisions from other forum selection clauses under the rational that the Federal Arbitration Act preempts state franchise laws. This legislation would effectively negate the rational applied by the Allen court, as well as other courts throughout the country.
While not much will occur during the remainder of August due to Congress’ summer break, these bills will be moving through the respective Committees at the beginning of September.