By Sarah J. Moore & David P. Frantz*
On March 3, 2022, President Biden signed into law the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act” (the “Act”). The Act, which received bipartisan support in Congress, amended the Federal Arbitration Act and effectively nullified any pre-dispute arbitration agreement provisions that required arbitration of sexual assault and sexual harassment claims in lieu of proceeding in court. While the Act only covers (1) “sexual assault disputes,” defined as “a dispute involving a nonconsensual sexual act or sexual contact, . . . including when the victim lacks capacity to consent,” and (2) “sexual harassment disputes,” defined as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law,” its potential impact on the overall effectiveness of arbitration agreements in the employment setting remains unclear.Historical Preference by Employers for Mandated Arbitration
Employers have utilized mandatory arbitration agreements to minimize expenses and, potentially, overall legal exposure by requiring employees to resolve disputes through arbitration rather than litigating cases in court. Arbitration offers a shorter, less expensive process that by many studies yielded lower employee win rates as compared to court actions. Historically, Congress and the courts have treated arbitration as a favored means of dispute resolution, including in the employment context.Employers Lose Right to Have Sexual Assault & Sexual Harassment Claims Solely Handled in Arbitration
Under the Act, a plaintiff retains an unfettered right to file a sexual assault or sexual harassment claim either in court or under a pre-dispute arbitration agreement. Further, a plaintiff may bring the claim individually or as a class action, even if class waiver provisions in a pre-dispute arbitration agreement would have demanded otherwise. Employers lose any ability to force these matters to arbitration – plain and simple.Potential Impact on Enforceability of Pre-Dispute Arbitration Agreements on Future Claims
Determination of whether a dispute falls within the scope of the Act falls to courts and not to arbitrators, as does “the validity and enforceability of an agreement to which [the Act] applies.” This remains true even if the underlying arbitration agreement delegates authority to the arbitrator to determine whether a claim falls within the scope of the agreement or whether the agreement is enforceable. By effectively transferring all “gateway” issues of arbitrability to the courts and out of the purview of arbitrators, the Act creates a pathway to erode employers’ contractual rights.Although Senator Joni Ernst (R-Iowa) stated in support of the Act, “my colleagues agreed with me that this bill should not be the catalyst for destroying pre-dispute arbitration agreements in all employment matters… [and] … [i]t should not be used as a mechanism to move employment claims that are unrelated to these important issues out of the current system,” it is highly unlikely the plaintiff’s bar will roll over and agree. When an employee sues an employer, it is rare to see only one legal claim asserted. Instead, a plaintiff will assert all employment claims known to exist. So, while the Act contemplates an exemption for only two categories of claims, it potentially opens the door for extracting all contemporaneously asserted claims out of mandatory arbitration and into the courts. How the Act impacts the viability of arbitration agreements in the employment arena moving forward remains unclear but will likely involve many hard-fought legal battles. Further, employers may now face multiple cases from the same employee at the same time – e.g., sexual harassment claims in court and other claims in arbitration.
Recommendations Moving Forward
Now that the Act is law, all employers with arbitration agreements should assess their current legal mitigation strategies to determine how to react to the new law with respect to entering into mandatory arbitration agreements with new hires and what to do with mandatory arbitration agreements already in place.*If you have questions relating to the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, arbitration agreements, or any other employment law issues, please contact Sarah Moore (sjm@zrlaw.com) or David Frantz (dpf@zrlaw.com) at (216) 696-4441.