By Rachel H. Khedouri, Esq. and Carol Shieh, Esq.
Employers who require their workforce to execute predispute arbitration agreements or class action waivers will soon no longer be able to prevent employees from bringing sexual harassment and assault claims to court or participating in joint sexual harassment or assault actions.
Signed into law on March 3, 2022 by President Biden, the bipartisan Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “Act”) will amend Title 9 of the U.S. Code — otherwise known as the Federal Arbitration Act — to prohibit enforcement of predispute arbitration clauses and joint-action waivers as applied to sexual harassment or assault claims under Federal, State or Tribal law. CLICK HERE for the full text of the Act.
Below are answers to questions companies may have about this significant change in the field of employment arbitration:
Q1. What types of agreements are covered by the Act?
The Act encompasses all predispute arbitration agreements and predispute joint-action waivers in agreements, such as employment contracts. A “predispute arbitration agreement” is defined by the Act as an agreement to arbitrate a dispute that has not yet arisen at the time the agreement is entered and a “predispute joint-action waiver” means an agreement — whether or not part of a predispute arbitration agreement — that would waive the right of one of the parties to participate in a joint, class, or collective action concerning such a dispute whether brought in an arbitral, juridical, or another forum.
Q2. Does an employer have the right to decide whether to arbitrate in a particular case?
No. Under the Act, only individuals or named representatives of a class or collective action alleging sexual harassment or assault are permitted to choose whether to proceed to arbitration (either individually or on behalf of a class). Although the Act may be seen as sounding a death knell for arbitration of sexual harassment claims, some claimants may prefer the privacy an arbitration forum can provide.
Q3. Does the Act apply to claims of harassment based on other protected characteristics like race or age? What about sexual harassment claims under City or Local law?
No. As of now, the arbitration bar applies only to sexual harassment and sexual assault disputes, which are defined, respectively, as disputes “relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law” and “involving a nonconsensual sexual act or sexual contact . . . including when the victim lacks the capacity to consent”. Given this, employees will have strategic choices to make if they bring multi-faceted claims, such as: Should they agree to arbitrate all claims together, should they pursue all claims in court, or should they attempt to proceed with claims in different places?
Similarly, if employees opt for court on their sexual harassment claims, employers may be faced with the decision of whether to compel arbitration of any non-sexual harassment claims. Although the scope of the Act is narrow, it is likely that predispute arbitration will be more broadly banned in the near future. In its February 1, 2022, Statement of Administration Policy supporting the Act, the Biden administration expressed its intent to work with Congress to enact legislation that also would bar the arbitration of claims alleging race discrimination, wage theft, and unfair labor practices.
In addition, the Forced Arbitration Injustice Repeal (“FAIR”) Act — which was reintroduced in March 2021 after failing to pass the Senate in 2019 and is currently pending in both houses of Congress – would amend the Federal Arbitration Act to prohibit predispute agreements that force arbitration of any employment, consumer, antitrust, and civil rights dispute, as well as any agreements or practices that interfere with joint, class or collective actions related to such disputes. The FAIR Act would reverse the Supreme Court’s recent watershed decisions holding that employment agreements containing arbitration agreements are enforceable under federal law.
Q4. Who decides a dispute over whether the Act applies or over the enforceability of an agreement to arbitrate?
A court, not an arbitrator, is to apply Federal law in determining whether the Act applies to a particular dispute and the validity and enforceability of the agreement at issue — even if the agreement itself expressly delegates such determination to an arbitrator.
Q5. Can I still have my employees sign arbitration agreements upon hire?
Yes. The law does not make it unlawful to require employees to execute arbitration agreements, including those that address the right to bring sexual harassment claims in court. In addition, the Act would not prevent the employer from requiring arbitration of claims of sexual harassment under city or municipal law or any other type of harassment or discrimination claim, including sex discrimination. However, as discussed above, if an employee later raises a Federal, Tribal, or State claim of sexual harassment, it is the employee’s decision whether to pursue that claim in arbitration or court.
Q6. Does the Act apply to agreements already in place with employees?
Yes. The Act expressly provides that it applies to any “dispute or claim” arising or accruing after enactment of the Act, without regard to when the agreement itself was entered. Accordingly, the prohibitions of the Act encompass all existing and future arbitration agreements, including those entered prior to the enactment of the legislation. Claims that arose or accrued before the law’s enactment are not covered and, thus, may be subject to mandatory arbitration.
Q7. Are there similar laws in California already in effect? Not exactly. There is California legislation prohibiting mandatory employment arbitration agreements generally, but this statute is currently stayed and under judicial review. Because it is an evolving topic, we recommend that employers consult with employment counsel to ensure compliance when using arbitration agreements in California.
If you have any questions relating to this new law or would like assistance in reviewing your arbitration agreements, class action waivers, or other employment policies, please reach out to Stacy L. Fode at 619.292.0515.