By John Arnold, Peter Moser, Catherine Reuben February 17, 2022
Following the lead set by the U.S. House of Representatives, the U.S. Senate passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“the Act”) on February 10, 2022. Assuming that President Biden signs a final version into law as anticipated, the Act will, effective on the date of enactment, invalidate pre-dispute contract provisions requiring mandatory arbitration of any:
– “Sexual Assault Dispute” meaning a dispute involving a nonconsensual sexual act or sexual contact; or
– “Sexual Harassment Dispute’ meaning a dispute relating to any of the following conduct directed at an individual or a group of individuals:
The new law changes the landscape with respect to the enforceability of arbitration clauses at both the state and federal level. Up to this point, the U.S. Supreme Court has consistently held that the Federal Arbitration Act (“FAA”) preempts any conflicting state law regarding arbitration. So, while some states had enacted similar laws since the inception of the #MeToo movement, they were unable to stand up to the preemptive power of the FAA and were ultimately overturned by courts. With the passage of the new federal law, however, even if an individual has signed a contract agreeing to arbitrate future disputes related to sexual assault, sexual harassment, and related retaliation, the individual can still bring a lawsuit for such claims in Court. The individual cannot be compelled to resolve the matter exclusively through arbitration.
The Act also prohibits enforcement of a “predispute joint-action waiver” requiring mandatory arbitration of Sexual Harassment or Assault Disputes, which is defined as an “agreement, whether or not part of a predispute arbitration agreement, that would prohibit, or waive the right of, one of the parties to the agreement to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum, concerning a dispute that has not yet
arisen at the time of the making of the agreement.” Thus, employers cannot rely on arbitration agreements as a means of preventing individuals from participating in class actions or other joint proceedings if the claims involve sexual harassment, assault, or related retaliation.
Critically, for employers and employees alike, the bill is retroactive; any clauses in existing contracts requiring arbitration of Sexual Harassment or Sexual Assault Disputes are no longer enforceable. The law, by its terms, does not impact the arbitrability of other types of claims, nor does it address the validity of arbitration agreements voluntarily entered by individuals after a covered dispute has arisen. The law does specifically state, however, that the question of whether or not a particular dispute falls within the scope of the law is a decision for the Court, not an arbitrator.
Employers may wish to take this opportunity to revisit the existing language and specificity of any arbitration clauses within their employment agreements. While the law does not state that merely having an arbitration clause applicable to sexual harassment and assault claims is itself unlawful, employers should nonetheless consider specifically excluding such claims to avoid misunderstanding and to enhance the enforceability of the remainder of the agreement. Given also that the scope of claims subject to arbitration has just been significantly narrowed, employers may wish to revisit the question of whether a mandatory arbitration clause still makes sense for their business. A list of the Pros and Cons, as well as some practical tips for drafting arbitration clauses, can be found here.
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