US: Congress Passes Federal Law Restricting Arbitration Agreements for Sexual Assault, Harassment Claims

A new law invalidating and unenforceable pre-dispute arbitration agreements and class action waivers covering allegations of sexual assault and sexual harassment has passed Congress and is heading to President Joe Biden’s desk.

The Sexual Assault and Sexual Harassment Forced Arbitration Act of 2021 amends the Federal Arbitration Act (FAA) to give employees who are party to arbitration agreements with their employers the ability to bring their claims of sexual assault or sexual harassment in arbitration or court. President Biden is expected to sign it shortly.

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The FAA provides that written agreements to arbitrate are “valid, irrevocable, and enforceable, except on grounds that exist in law or equity for revocation of any contract.” As recently as 2018, the United States Supreme Court reaffirmed, in Epic Systems vs. Lewisthat the FAA requires performance of arbitration agreements, including those with class action waivers, in accordance with their terms.

In response to the Court’s decision and the #MeToo movement, several states have passed or proposed legislation limiting the use of arbitration agreements for sexual harassment or other employment claims. These laws conflicted with the FAA as to agreements governed by it and are being challenged in litigation. Congress has also attempted to pass similar bills limiting the ability of employers to mandate pre-litigation for labor disputes, such as the PRO Act, FAIR Act, and Build Back Better. None have passed so far.

Key provisions

Originally introduced in 2017, the law adds a section to the FAA:

[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 any matter filed under federal, tribal, or state law and related to the sexual assault dispute or dispute of sexual harassment.

The law defines “sexual assault dispute” as “a dispute involving a non-consensual sexual act or sexual contact” and “sexual harassment dispute” as “a dispute relating to conduct that is alleged to constitute sexual harassment in under applicable federal, tribal or state law. .” The term “Joint Action” includes Class Action and Class Action Waivers.

The law 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 provides that it will apply with respect to any litigation or claim arising or accumulating from the date of promulgation of the Act.

What employers need to know now

  1. As enacted, the law only applies to “a case filed under federal, tribal, or state law and related to allegations of sexual assault and sexual harassment.” This means that otherwise valid arbitration agreements remain valid and enforceable with respect to other types of claims. That said, we anticipate litigation over the scope of the law.
  2. The law applies to invalidating arbitration agreements and class or class action waivers with respect to claims of sexual assault and sexual harassment arising or accumulating after the date the law is enacted. Regardless of the date of the agreement at issue, the Act does not affect claims that arose or accrued prior to the passage of the Act.
  3. Employees who are parties to an arbitration agreement may choose to pursue their sexual assault and sexual harassment claims in arbitration or in court. Although arbitration is not entirely confidential, it is inherently more confidential than litigation in court due to the lack of a public record. Employees who are parties to arbitration agreements may choose the more confidential arbitration forum. The new law makes it clear that when it comes to claims of sexual assault and sexual harassment, the employee, not the employer, decides, regardless of what an arbitration agreement says.
  4. Despite what an arbitration agreement says, the courts, not the arbitrators, will decide whether claims go to arbitration. So when an employee chooses to file a sexual assault or sexual harassment claim in court, the court, rather than an arbitrator, decides whether the court is the appropriate forum for the claims.

What does the future hold?

Employers with arbitration agreements should expect more sexual assault and sexual harassment claims to be filed in court, rather than in arbitration. Additionally, we expect legislative efforts to expand the scope of the law to add other types of employment-related claims to the list of claims that cannot be settled. arbitration prior to disputes. In a February 1, 2022 administrative policy statement, the White House said, “The administration also looks forward to working with Congress on broader legislation that addresses these and other forced arbitration issues, including adjudication of complaints regarding discrimination on the basis of race, wage theft and unfair labor practices. The law took years to pass in its current form, and some commentators observe that its bipartisan adoption is attributed to its narrow scope. For now, the law is limited to complaints of sexual assault and sexual harassment.

Key Action Points for Human Resources and Corporate Lawyers

Finally, employers should continue to closely monitor developments in this area, as this law will likely be used as a model for other bills prohibiting pre-dispute arbitration agreements in other areas, such as complaints for discrimination and discriminatory harassment.

About Michael S. Montanez

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