Congress yesterday passed a bill that would make pre-dispute arbitration agreements and class action waivers covering sexual assault and sexual harassment claims invalid and unenforceable. The bill is headed to President Joe Biden’s desk, and he is expected to sign it. Here, we explain the bill and implications if it becomes law.
By way of background, the bill is titled “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” (the “Act”) and it amends the Federal Arbitration Act (FAA) to give employees who are parties to arbitration agreements with their employers the option of bringing their claims of sexual assault or sexual harassment in arbitration or in court. Employers who routinely use arbitration agreements with class action waivers to cover all claims arising out of or related to employment will
know that such waivers generally state that any sexual harassment-type claims must be resolved through individual, confidential, arbitration. The agreements, thus, generally require the employee to utilize arbitration. If enacted, the Act would allow an employee claiming harassment to avoid going through arbitration to resolve their claims. Rather, the employee would have a choice as to whether to pursue claims against their harasser in court or through arbitration.
Employee advocate groups argue that confidential arbitration proceedings limit employees’ abilities to expose abusive employers through public court proceedings. In the wake of the MeToo movement, there have been significant efforts to repeal agreements and laws that, advocates argue, allow employers to “get away with” and cover up harassment claims made against harassing managers.
States like New York have tried to make agreements mandating confidential arbitration unenforceable, but such state restrictions conflicted with the FAA and, thus, are not enforceable. The Act seeks to cure that conflict between the FAA and state laws.
The Act adds a section to the FAA that states, “[A]t the election of the person alleging conduct constituting a sexual harassment dispute or a sexual assault dispute …. no pre-dispute arbitration agreement or pre-dispute 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 nonconsensual sexual act or sexual contact” and “sexual harassment dispute” as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” The term “joint-action” waiver includes class and collective action waivers.
The Act further provides that the validity or enforceability of an agreement will be determined by a court rather than an arbitrator, despite the existence of a contractual term to the contrary. Finally, the Act states that it shall apply with respect to any dispute or claim that arises or accrues on or after the date of the Act’s enactment.
Takeaways for Employers
As enacted, the Act seems to apply only to claims that relate to sexual harassment or assault claims, meaning that other types of claims (e.g., wage and hour) could continue to be arbitrated, and that class action waivers of those claims would continue to be valid. Employers should not abandon arbitration agreements with class action waivers as a result of the Act’s anticipated passage.
Employers with arbitration agreements should anticipate more sexual assault and sexual harassment claims being filed in court, rather than arbitration. Employees will likely choose to pursue their sexual harassment claims in a public forum like the courts, in order to exert pressure on the employer to settle early on. While arbitration is not entirely confidential, it is inherently more confidential than litigation in court because of the absence of a public record. However, the new law makes clear that, with respect to
sexual assault and sexual harassment claims, it is up to the employee, not the employer, to decide whether the case is tried in court or in arbitration, regardless of what an arbitration agreement says.
As always, employers should implement risk mitigation efforts aimed at reducing their exposure to harassment claims, including sexual harassment claims. The likely passage of this Act will only raise the stakes for employers who are sued for alleged harassment.