Maryland Moving to Ban Arbitration Agreements That Preclude Class actions

April 01, 2011

With the change of control in the U.S. House of Representatives, efforts of the plaintiffs' bar to limit employment arbitration have shifted to states.  The Arbitration Fairness Act (AFA), which would have banned pre-dispute arbitration agreements between employers and employees, has not yet been introduced in either house of the new U.S. Congress.  However, the Maryland House of Delegates recently passed a bill which would have the effect of banning class action waivers in arbitration agreements by the overwhelming margin of 108 to 32.  Maryland House Bill 729 would render unenforceable and invalidate any agreement made before a dispute arises that waives or has “the practical effect of waiving the rights of a party to that agreement to resolve the dispute by obtaining relief as a representative or as a member of a class of similarly situated persons.”  The bill would apply retroactively to existing class action arbitration waivers.  The scope of the bill is exceedingly broad covering all class action waivers in arbitration agreements such as those between employers and employees, consumers and businesses, and franchisers and franchisees.  The Maryland Senate is expected to consider the bill in the very near future.  If the legislative measure is successful in Maryland, it will almost certainly spread to other states.