Closing the gate to arbitrate: New law bans pre-dispute arbitration agreements on sex harassment and abuse claims


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On March 3, 2022, President Biden signed the long-titled Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. Seen as a result of the #MeToo movement, this fairly simple amendment to Title 9 of the United States Code prohibits private employers from mandating that employees submit to arbitration of sexual assault and sexual harassment claims.

While the narrow scope of this law does not completely negate all employment arbitration agreements, it is intended to and will likely have a large impact on employment claims in the future.

Arbitration agreements between employees and their bosses have grown in popularity over the years. The Federal Arbitration Act (FAA) is a powerful law that is given great deference by both state and federal courts.

Businesses have historically seen arbitration as a way to cut litigation costs, achieve confidentiality on employment claims, and speed up the process of resolving all sorts of claims related to the workplace. According to the American Association of Justice in 2021, over 60 million workers in the U.S. were under contracts or agreements that mandated arbitration.

In the last 5 years, however, some high-profile sexual harassment cases that were referred to arbitration under employment agreements have raised the ire of the public, who in turned leaned on their legislators. States like New York and California passed legislation that prohibited or limited what types of employment cases could be mandated to arbitration. Employers who favored arbitration challenged those laws by claiming that the FAA pre-empted the state legislation. Some of those challenges were successful and focused attention on the FAA itself.

In 2017, Senators Kirsten Gillibrand and Lindsey Graham introduced the bill called Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. It had bi-partisan support in both chambers and ended up passing in February 2022. President Biden signed it into law the next month.

The law allows victims of workplace sexual assault and sexual harassment to take their claims to court instead of being forced to arbitrate. A plaintiff with those type claims who is under an arbitration agreement gets to make the choice whether to arbitrate or file their claims in court.

This law only applies to sexual harassment or sexual assault claims and only those filed after March 3, 2022. It does not affect any claims that were either filed before that date or already were in arbitration prior to that date. The law also does not affect other workplace claims that might be filed — like discrimination based on race, gender or age.

Another significant part of the law is that it prohibits employers from forcing an employee to waive their right to file or join a class action or collective action based on sexual assault or sexual harassment. In recent years, there have been some large class actions based on allegations of sexual abuse.

For example, a class action was established by athletes against USA Gymnastics based on allegations of sexual abuse by a team doctor. McDonald's was sued in a class action by employees who claimed they suffered sexual harassment from managers.

Many employment agreements with arbitration clauses included provisions prohibiting employees from filing or joining a class action based on employment practices. Under this new law, employees claiming sexual harassment or sexual abuse will be able to file or join class actions for those type allegations.

The law also includes a specific remedy if there is a dispute over whether an allegation falls under the definition of sexual abuse or sexual harassment. In the past, many arbitration agreements gave an arbitrator the power to determine whether a claim fell within the scope of an arbitration clause. Under the Ending Forced Arbitration law, a court must make the determination whether an allegation constitutes sexual abuse or harassment and falls within the law.

While the law seems simple in its application, there appears to be a major ambiguity in how it may apply in certain situations. As stated above, the law only covers sexual harassment and sexual abuse claims. But not every claim or lawsuit only includes those types of allegations. How will the law apply to a complaint that includes both sexual harassment and retaliation?

The Ending Forced Arbitration law will permit the employee to select either court or arbitration for the resolution of the sexual harassment claim, but the law does not negate the arbitration provision that covers a retaliation claim.

Will the claims be severed with the sexual harassment claim going to court and the retaliation claim going to arbitration? Is there a chance that fact finding in either forum would be preclusive in other forums? Unfortunately, those questions will be left up to future courts and arbitrators.

One of the other questions on the horizon is whether this law is foreshadowing additional future attempts to roll back mandated arbitration. President Biden's administration has signaled its dislike of arbitration agreements. As discussed above, several states have targeted employment arbitration agreements not only for sexual harassment and sexual abuse, but for other types of claims, as well.

There have also been some rumblings in the business community that arbitrations really are not significantly cheaper than litigation in a court room and that the lack of a right to an appeal from a loss at arbitration is a sticking point. It will be interesting to see how the application of the Ending Forced Arbitration law will affect attitudes about arbitration as a whole.

Employers may ask, what should we do in response to this new law? Hopefully, employers are already doing their best to prevent any actions in the workplace that would result in a sexual harassment or sexual assault claim.

However, this law might be a good trigger for some refresher training on behaving properly in the workplace. The best defense for these types of claims is a well-publicized and effective policy and consistent enforcement of the policy.

The best practice is to make sure that your employees understand the policy and know how they can report problem behavior. Employers need to be aware that if one of your workers does file a sexual abuse or sexual harassment claim, it is likely to be litigated in court and be very public.

It may also be a good time for employers to re-examine any employment agreements and arbitration clauses. Does the company still feel that arbitration is cost-effective and helpful in the resolution of claims? Employers should also consider any state or local laws that may affect the enforcement of a mandated arbitration clause. Everyone should keep their eyes open to see what the trends may be on arbitration in general.

Republished with permission. This article, "Closing the gate to arbitrate: New law bans pre-dispute arbitration agreements on sex harassment and abuse claims," was published by Westlaw on April 4, 2022.