On February 10, 2022, the U.S. Senate passed the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” (the “Act”). This new law significantly limits the scope of the Federal Arbitration Act (“FAA”) by preventing employers from enforcing pre-dispute arbitration agreements and class action waivers covering sexual harassment or sexual assault claims. President Biden is expected to sign the Act into law once it reaches his desk.

The Act effectively removes sexual harassment and sexual assault claims from mandatory employment arbitration, amending the FAA as follows:

• Permits any person alleging sexual harassment or sexual assault to invalidate an arbitration agreement or class action waiver that would otherwise require the dispute to be arbitrated;
• Permits parties to voluntarily choose to arbitrate any disputes where the parties enter into the agreement to arbitrate after the claim arises; and
• Requires that any dispute over the provisions of the Act will be determined under federal law and by a court rather than an arbitrator, regardless of language in the arbitration agreement providing otherwise.

WHAT EMPLOYERS NEED TO KNOW

The Act applies prospectively to disputes or claims that arise or accrue on or after the date of enactment and will not retroactively apply to existing disputes where the parties already have an arbitration agreement in place.

Arbitration agreements and dispute resolution programs can still be effective and enforceable as to other disputes with employees, such as discrimination, retaliation, and wage and hour disputes. (Notably, President Biden has indicated he supports legislation that would also preclude pre-dispute arbitration agreements for race discrimination and unfair labor practices).

Employers may have arbitration agreements governed by state law. Such agreements must explicitly state that they are governed by state law and are not under the FAA. Depending on jurisdiction, some state laws may still permit employers to enforce pre-dispute arbitration agreements against employees bringing sexual harassment or sexual assault claims. However, in light of this new law and the obvious conflict with those states whose laws permit mandatory arbitration of sexual harassment and assault claims, employers should expect that an employee who wants to be in court would challenge any conflicting state law.

Because employee complaints often include multiple allegations, the Act will likely lead to the bifurcation of claims. For example, if, in addition to sexual harassment, an employee brings claims for discrimination and retaliation, the employer might find itself defending against the employee’s claims both in court and in arbitration.

NEXT STEPS FOR EMPLOYERS

Employers should consider revising pre-dispute arbitration agreements by modifying existing carve-out provisions to include language stating that employees may voluntarily elect to arbitrate sexual harassment and sexual assault disputes, should they arise.

Employers should continue to track state-level developments related to arbitration agreements, since there are continued efforts underway across the country to modify the scope of claims covered by such agreements. Several states—including California, New York, New Jersey, Maryland, Washington, and Vermont—have already passed laws limiting what employers can mandate in employment agreements with respect to sexual harassment claims.

If nothing else, the Act’s passage serves as a reminder to employers that the best course of action is to minimize the risk of sexual harassment and sexual assault claims by creating a culture which protects its workforce from such conduct in the first place. This requires strong policies, clear procedures, mandatory and customized training, an effective complaint procedure, and consistent, immediate reactions to such conduct.

Gray Reed attorneys stand ready to help employers evaluate their existing arbitration agreements or implement new ones, taking into consideration the most recent legal developments at both the state and federal level, the nature and needs of employer, and the specific legal risks facing the business.