New Federal Law Nixes Forced Arbitration of Sexual Harassment Claims

It has not been at all uncommon for employers to present potential new employees with an arbitration agreement (or an employment agreement that contains an arbitration provision) before they start a new position. In some cases, particularly for potential employees who apply online or complete an online orientation program, these arbitration provisions are presented as a “click-through” form. In other cases, these arbitration provisions are included in employee handbooks or on employee intranet systems which employees acknowledge that they have received upon hiring.

It is important to appreciate the distinction between arbitration and litigation. Arbitration refers to a process in which a private individual or panel of individuals chosen by the parties hears and decides their case. Litigation, on the other hand, refers to the traditional process in which a judge or jury decides the case. 

Arbitration has its advantages and disadvantages. On the one hand, it is more private than a lawsuit filed in state or federal court, the parties can select an arbitrator or panel of arbitrators with knowledge of the particular area of law or industry, the process may be more streamlined than litigation, and arbitrators have a fair amount of flexibility in conducting the cases that come before them.  On the other hand, in some cases, depending on the complexity of the issues, an arbitrated dispute may take just as long, be just as expensive, and require discovery just as extensive as an ordinary lawsuit.  While the parties need not compensate a state or federal judge that hears their case, the fees associated with using an arbitrator can be significant.  Finally, an arbitrated decision is usually binding, and very little grounds exist for an appeal – which is either an advantage or disadvantage, depending on a party’s satisfaction with the outcome.

The Federal Arbitration Act (FAA) provides that written agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Litigants have long sought to have arbitration agreements in the context of employment claims disregarded, but those efforts have long failed. In fact, in Epic Systems v. Lewis, 584 U.S. ___ (2018), the United States Supreme Court reaffirmed its commitment to the enforceability of arbitration agreements, even when they might apply to sexual harassment and other employment claims. In response to that Court decision and other social trends, several states have enacted legislation aimed at curbing the use of arbitration agreements for sexual harassment and other employment.

A new federal law provides some greater clarity on this issue as it relates to sexual assault and sexual harassment claims. In February, Congress passed and President Biden has signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which 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 either arbitration or a court of law. It provides as follows:

[A]t the election of the person alleging conduct constituting a sexual harassment dispute or a sexual assault dispute . . . no 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 sexual harassment dispute.

The Act defines “sexual assault dispute” as any “dispute involving a nonconsensual sexual act or sexual contact,” and it defines “sexual harassment dispute” as “dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” Finally, the term “joint-action” waiver includes class and collective action waivers.

Employers should bear in mind three key points regarding the impact of this new law.

  • First, it is significant that the Act currently applies only to “a case which is filed under Federal, Tribal, or State law and relates to the sexual assault and sexual harassment claims.” This means that – at least for the time being – arbitration agreements remain valid and enforceable with respect to other types of employment claims. However, it is anticipated that Congress will take efforts to broaden the scope of the law to add other types of employment claims to the list of claims that may not be forced into binding arbitration. In fact, in a recent Statement of Administration Policy, the White House stated, “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.”
  • Second, the Act invalidates arbitration agreements for sexual assault and sexual harassment claims arising after the date of the Act’s enactment. Thus, if the claim arose or accrued before the Act became law, the Act does not apply.
  • Finally, if an employee has signed an arbitration agreement, he or she is free to chose whether to pursue his or her claim in arbitration or court. As mentioned above, arbitration has its advantages and disadvantages, and confidentiality is one of the benefits of arbitration. Thus, in some cases, an employee may nonetheless elect to pursue arbitration, rather than litigation in a Tribal, federal, or state court.

It is expected that further changes in this area will take place in the coming months and years. If you have included an arbitration provision in your company’s employment agreements, or if you are considering doing so, it is wise to consult with your attorney to discuss the enforceability of those provisions.

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