Employers should review their arbitration agreements and class action waivers and determine whether they should be modified in light of the Act.
In a rare act of bipartisanship and by unanimous voice vote on February 10, 2022, the U.S. Senate passed legislation to eliminate the use of binding arbitration provisions for disputes involving sexual assault and sexual harassment. President Joe Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (HR 4445) into law on March 3, 2022.
Summary of the Law
The Ending of Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 provides that:
[N]o predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.
The Act defines “sexual assault dispute” as “a dispute involving a non-consensual sexual act or sexual contact” and includes “when the victim lacks capacity to consent.” The phrase “sexual harassment dispute” means “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.”
Under the Act, a party to an agreement requiring arbitration of claims that had not yet arisen when the agreement was signed cannot enforce the agreement against a person who files a claim alleging either sexual harassment under federal, tribal or state law, or nonconsensual sexual act or sexual contact. The Act expressly provides that the person claiming sexual harassment or sexual assault can elect to go to arbitration instead of pursuing such claims in court.
Similarly, as to sexual assault or sexual harassment disputes, the Act precludes a party from enforcing a “predispute joint action waiver,” which is an agreement that would:
[P]rohibit, or waive the right of, one of the parties to the agreement to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum, concerning a dispute that has not yet arisen at the time of the making of the agreement.
The Federal Arbitration Act (FAA) strongly favors the arbitration of disputes, but the new Act amends the FAA to make exceptions to the general rule in favor of arbitration “to stop employers and businesses from forcing employees and customers out of the court system and into arbitration.” See Executive Office of the President, Statement of Administration Policy. Lawmakers expressed that they drafted the Act in response to the #MeToo movement exposing that mandatory arbitration provisions enabled repeat sexual harassment and sexual assault offenders to avoid being held accountable because arbitration proceedings are often confidential.
The Act is retroactive in that it bans mandatory arbitration agreements or joint action waivers for sexual assault or sexual harassment disputes if the arbitration agreement or joint action waiver was signed before the claim arose, although the victim can elect arbitration if they prefer. This means that agreements to arbitrate sexual assault or sexual harassment disputes entered into prior to the passage of the Act will be invalidated as to those disputes (unless the person claiming the dispute elects to go to arbitration).
However, because the Act applies to any sexual assault or sexual harassment disputes that arise or “accrue” after the Act becomes law, it does not apply to arbitrations involving sexual assault or sexual harassment disputes that are already pending.
Notably, the Act does not apply to disputes alleging discrimination or retaliation based on other protected categories (i.e., race, national origin, religion, disability) and to claims brought under local law.
Determination of Applicability
The applicability of the Act to an arbitration agreement must be determined by a court, regardless of whether the agreement delegates such determinations to an arbitrator. The Act specifies that the court must use federal law when making such determinations, rather than state law, which may conflict with the Act.
What This Means for Employers
Employers should review their arbitration agreements and class action waivers and determine whether they should be modified in light of the Act. While the Act does not appear to require amendment of existing agreements, employers should consider the following issues:
- Should sex discrimination claims other than harassment still be subject to mandatory arbitration so that, if an employee alleges both, they could arguably be resolved in different forums?
- What message is being sent to employees if sexual harassment claims receive what may be perceived as greater protection under employer arbitration agreements or policies than harassment based on race, religion or membership in other protected groups?
- Should the obligation to arbitrate be limited to claims for breach of contract and wage payment/overtime claims?
- Should arbitration agreements be modified for new employees only or also for existing employees?
The answers to these and related questions will not be the same for all employers and warrant careful consideration given the significant impact arbitration programs can have on employee relations and the potential exposure to liability and expenses if claims are raised.
According to the White House, an estimated 60 million Americans are currently subject to mandatory arbitration clauses in the workplace. The passage of HR 4445 is expected to bring significantly more claims of sexual harassment and assault to the public court system as opposed to behind the closed doors of arbitration proceedings.
While the Act does not apply to other types of discrimination claims, the potential exists for a similar arbitration ban to extend to other discrimination claims in the near future. As noted in President Biden’s Statement of Administration Policy:
The Administration also looks forward to working with the Congress on broader legislation that addresses these issues as well as other forced arbitration matters, including arbitration of claims regarding discrimination on the basis of race, wage theft, and unfair labor practices.
In the meanwhile, consideration also must be given to state and local laws that limit or prohibit arbitration, and whether they are preempted by federal law.
For More Information
If you have any questions about this Alert, please contact Eve I. Klein, Jonathan A. Segal, Jonathan D. Wetchler, Caroline M. Austin, Linda B. Hollinshead, Elisabeth Bassani, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.