Regulatory Update: Sexual Harassment Law Alters Arbitration
On March 3, President Biden signed into law legislation that revises the Federal Arbitration Act (FAA) by banning the use of pre-dispute arbitration agreements in cases where allegations of sexual assault or sexual harassment are involved.
Called the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, this particular reform had been sought since the early days of the #MeToo movement when it was discovered that in several high-profile cases, employers had relied on arbitration agreements signed by employees when they were hired to keep harassment allegation from becoming public.
“Between half and three-quarters of all women report that they have faced some form of sexual harassment in the workplace,” Biden pointed out when he signed the measure. “And too often, they’re denied a voice and a fair chance to do anything about it. Today, we send a clear and strong message that we stand with you for safety, dignity and for justice.”
One of the bill’s many supporters in Congress, Sen. Richard Durbin (D-Ill.), declared, “Forced arbitration clauses not only deny survivors their right to a day in court, they also conceal their allegations from public view. That is a green light for abusers to continue harming and harassing victims.”
It has been reported that the Biden administration intends to pursue the enactment of other exceptions to the FAA for other employment-related claims, including those alleging sex discrimination, discrimination or harassment on the basis of race and ethnicity, or wage claims. On the other hand, Sen. Joni Ernst (R-Iowa), a supporter of the new law, said that while this bill has received strong bipartisan support, a future bill expanding the scope to all employment matters might not receive the same kind of broad support.
Over the past five years, a number of states passed similar legislation in response to requests made by victims’ advocates, including laws that were enacted in California, New York and New Jersey. However, courts previously found that these statutes are preempted by the FAA, which had been enacted in 1925 with the intention of preventing employment cases from clogging the court system. The new law now allows these state laws to become effective as well.
It also means that, although employers may still include such provisions, employees may choose to be released from any pre-dispute arbitration agreement or joint-action waiver relating to a sexual assault or sexual harassment dispute, explain attorneys Natalie Gagarkina, Joe Flanagan and Michael Massiatte of the DLA Piper law firm.
The new federal law is retroactive to the extent that it nullifies arbitration provisions and class and collective action waivers relating to sexual harassment or sexual assault claims in existing, signed agreements. On the other hand, it does not apply retroactively in arbitrations that are already pending or to sexual assaults or harassment that “accrued” before the legislation was enacted.
Challenges regrading whether an arbitration clause in an employment contract falls under the new law’s prohibition must be decided by a court and not an arbitrator, regardless of whether the agreement at issue delegates such authority to an arbitrator.
The legislation applies to all claims of sexual assault or harassment, whether they arise under federal, state or tribal law. One thing it does not do is prohibit a plaintiff from agreeing to arbitration after the claim has arisen. “Some employees may choose to continue to bring these claims through arbitration, given the privacy afforded by the arbitration process,” observed attorneys for the law firm of Baker McKenzie.
Accordingly, they also recommend that employers should consult with legal counsel to update their policies and employment documents referencing arbitration of these claims.
This review should include all such existing policies, procedures and training efforts prohibiting discrimination, as well as harassment and retaliation in the workplace more generally and not just around sexual harassment, and make sure to train your workforce accordingly, say attorneys Delaney M. Busch and Danielle Dillon of the Mintz law firm.
The Baker McKenzie attorneys suggest, “Faced with the inability to have all sexual harassment or sexual assault claims decided in arbitration, employers may wish to carve such claims out of arbitration policies altogether. This would allow for a discussion between the employer and employee on a case-by-case basis about whether they wish to mutually agree to arbitration, rather than leave the determination solely in the hands of the employee.”
