On February 10, 2022, the U.S. Senate passed H.R. 4445, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” (the “Act”). The Act passed in the Senate with bipartisan support just days after it had been overwhelmingly approved by the House. President Biden is expected to sign the Act into law in the near future. Generally, the Act prohibits mandatory arbitration clauses and joint-action waivers in arbitration agreements governed by the Federal Arbitration Act (“FAA”) where the claims involved constitute a sexual assault or harassment dispute. Notably, the Act does not purport to affect arbitration agreements governed by state arbitration laws. The Act is viewed as a result of, and a milestone in, the #MeToo movement. Employers and other entities that use arbitration agreements should immediately review their arbitration agreements to ensure compliance with the new law. Continue reading below to learn more about the Act and its potential impact on your agreements that include arbitration clauses.
Although the Act’s prohibitions on mandatory arbitration of sexual assault and harassment claims are not limited only to employment agreements, the Act will have its broadest impact on employers. An estimated 60 million American workers have signed documents that require them to arbitrate workplace sexual harassment claims. The overwhelming majority of active arbitration agreements signed by employees is governed by the FAA, rather than by state arbitration laws that are potentially unaffected by the Act. Other industries, such as nursing homes, which often require residents to arbitrate sexual harassment claims, will be significantly impacted by this new law as well.
Critically, the Act allows a person alleging sexual assault or sexual harassment to unilaterally choose whether to invalidate an agreement governed by the FAA that would otherwise require the claim to be arbitrated and instead file a lawsuit in court. A plaintiff may still choose to proceed in arbitration instead of court, but this decision will rest entirely with the plaintiff. The Act also permits a named representative in a class or collective action involving sexual harassment or assault claims to invalidate a class or collective action waiver.
It is less clear whether the Act applies to retaliation claims arising from the same set of facts as a sexual harassment claim. The Act applies to conduct that is alleged to constitute sexual harassment under the law, but does not expressly include retaliation claims. This is an issue that will likely be decided by the courts over time.
Importantly, the Act applies to “any dispute or claim that arises or accrues on or after” the date the President signs the Act. Thus, even plaintiffs who signed arbitration agreements governed by the FAA before the Act is signed into law, but whose sexual assault or harassment claims arise after the Act is passed, will have the option to invalidate the previously binding arbitration agreement. However, parties that have already initiated arbitration proceedings will not be affected by the Act.
Further, the Act is written in a manner intended to prevent parties from artfully contracting around its provisions. If a plaintiff challenges the validity of an arbitration agreement or joint-action waiver covered by the Act, the challenge will be decided by a court applying federal law, rather than an arbitrator. This is true even if the parties’ arbitration agreement includes a “delegation clause” expressly delegating decisions on arbitrability to the arbitrator.
Through the Act, the federal government has joined the growing number of states, including Kentucky, that have recently passed laws that affect whether arbitration agreements may be enforced. The passage of the Act presents an opportune moment for employers, nursing homes, and others to review the terms of their existing arbitration agreements. Employers with broad arbitration agreements currently in place that are governed by the FAA and purport to cover every possible claim between employers and employees may consider several possible revisions to their agreements. For example, employers may consider amending their agreements to invoke state arbitration laws potentially unaffected by the Act, rather than the FAA. Other possible revisions in light of the new law include implementing a carve-out for sexual assault and harassment claims or providing employees with a choice of whether to bring a harassment claim in arbitration or court, rather than retaining language that purports to require employees to proceed in mandatory arbitration. Employers considering these revisions should work with legal counsel to ensure any revisions are in compliance with the complex, technical requirements of federal and state arbitration law.
Additionally, employers may want to consider contractual possibilities other than arbitration for mitigating the risk of potential sexual harassment claims. For example, shortened statutes of limitations and jury-trial waivers (which allow a judge, rather than a jury, to decide liability in a lawsuit) remain viable possibilities for sexual harassment claims in some states. SKO’s labor and employment attorneys are ready and available to assist employers and others in crafting arbitration agreements that comport with the Act and the employers’ culture and values.
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Stoll Keenon Ogden’s Labor, Employment & Employee Benefits practice has a proven record of being trusted advisors and effective advocates. We help employers solve their problems through proactive counseling, employee training and, where possible, cost-efficient litigation, including alternative dispute resolution. We know the employment laws thoroughly, and we make it our goal to acquire a comprehensive knowledge of our clients and their business, so we can provide tailored solutions for each of their needs.
