Legislation Could Affect Christian Arbitration

It’s not uncommon for a contract to contain a “dispute resolution clause,” describing the process the parties will use if they have a dispute down the road regarding some aspect of their contract. Because Christians are not supposed to take their disputes to court (I Corinthians 6:1-7), many contracts between Christians – including churches, ministries, and other Christian organizations – specify in their dispute resolution clause that the dispute will be resolved through mediation and, if that is not successful, then through arbitration (“med/arb”). That ensures that the dispute will not end up in court.

These are known as “pre-dispute” arbitration clauses, because the parties select the arbitration process before they have a dispute. It is much more difficult to agree on anything, including a dispute resolution process, once the parties are in dispute. So the Christian med/arb clause is a means for Christians to bind themselves to honor the biblical proscription against lawsuits among Christians.

As with other dispute resolution processes (e.g., negotiation, mediation, litigation), arbitration has pros and cons. It is typically faster and less expensive than litigation, and the parties can choose a neutral who has subject-matter expertise and is already familiar with the industry and the lingo. Unlike mediation, arbitration will definitely resolve the dispute; even if a party withdraws, the process continues to an award. The process is private, and is subject to very limited judicial review.

Arbitration clauses are coming under increasing scrutiny. The party that did not draft the contract may not even know that it contains an arbitration clause. Or the non-drafting party may be aware of the clause, but have no leverage to negotiate a different process, as with consumer contracts for credit cards, cell phones, etc. The non-drafting party may assume that the arbitration process will be fair, only to learn later that it favors the party that inserted the arbitration clause, which is usually the more powerful party, e.g., the employer or business.

So now there are both legislative and judicial efforts to restrict pre-dispute arbitration clauses. These will make it more difficult for Christians to include enforceable pre-dispute arbitration clauses in their contracts.

One such legislative effort is known as the FAIR Act, or Forced Arbitration Injustice Repeal Act. This bill would amend the Federal Arbitration Act to prohibit a pre-dispute arbitration agreement from being valid or enforceable if it requires arbitration of an employment dispute. This would presumably affect only the “arb” portion of a med/arb clause in an employment agreement. Since many Christian employers include a med/arb clause in contracts with their employees, the “arb” portion of that clause would not be enforceable, if this bill becomes law. (It passed the House in 2019 but did not pass the Senate, and was re-introduced in both houses in 2021.)

For example, many Christian schools include a med/arb clause in teacher contracts, typically calling for the dispute to be resolved in accordance with biblical principles. The Association of Christian Schools International, among others, has adopted the model contract clause long promoted by the Institute for Christian Conciliation (ICC), which calls for any dispute to be resolved through the ICC in accordance with its Rules of Procedure. This clause has been held legally enforceable, most recently in Whitefield Academy v Alford, ___ S.W. 3d ___ (Ky. App. 2021).

Another bill that just passed the House this week, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, would make arbitration clauses unenforceable in any actionalleging conduct constituting a sexual harassment dispute or sexual assault dispute.” This Act is narrower than the FAIR Act and is projected to become law. [Update: the President signed this into law on March 3, 2022, applicable to any claim of sexual assault or harassment “that arises or accrues on or after March 3, 2022.”] It means that any Christian School teacher who believes she has experienced sexual harassment could sue the school in court, the arbitration clause notwithstanding.

Parties could still proceed as if the arbitration portion of the med/arb clause were legally enforceable. But angry Americans are wont to sue one another, and angry Americans who happen to be Christian are also tempted to sue, even if their faith discourages them from doing so. If either of these bills becomes law, courts will not be able to enforce the arbitration clause that Christians inserted in their employment contracts. Both church and state benefit when the civil courts send church disputes to a church dispute resolution process. Legislation that makes certain aspects of arbitration agreements unenforceable makes it harder for Christians to keep their disputes out of court.

Related update: The Telios law firm, a leading firm on Christian employment issues, recently offered two observations regarding application of the EFA Act to organizations that have agreements for Christian dispute resolution: “First, it is unclear that the statute would control an agreement for dispute resolution that is based on the free exercise of religion. Second, an option is to have employees agree to participate in Christian mediation before going to the courts or arbitrating” because this would not be a binding arbitration agreement and thus would not be covered by the new federal statute.

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