Law Invaliding Arbitration Agreements For Sexual Harassment Claims Passes Congress

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 has passed Congress and President Biden is expected to sign it into law. The Act invalidates the enforcement of pre-dispute arbitration agreements and class action waivers for claims alleging sexual assault or sexual harassment. Under this law, employees will have the option to file such claims in court, either individually or as part of a class action.

The New Law Will Amend the Federal Arbitration Act

Once signed by President Biden, this new law will amend the Federal Arbitration Act (FAA).  The FAA provides that a written agreement to arbitrate is "valid, irrevocable, and enforceable" unless invalid under principles of state contract laws. The United States Supreme Court has generally upheld the enforceability of arbitration agreements between employers and employees, including agreements that waive the ability of employees to bring claims as a group or class.

The Act prohibits the enforcement of covered arbitration agreements "at the election of the person alleging conduct constituting a sexual harassment dispute or a sexual assault dispute or the named representative of a class or in a collective action alleging such conduct." It defines "sexual assault dispute" as "a dispute involving a nonconsensual sexual act or sexual contact." A "sexual harassment dispute" is defined as "a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law." A court (not an arbitrator) will decide whether a claim may be excluded from mandatory arbitration under the Act.

Key Takeaways and Questions for Employers           

• The Act is not retroactive. It will apply only to sexual harassment and sexual assault claims that arise after the law goes into effect. However, given the sometimes-fluid nature of sexual harassment claim, the issue of when a claim "arises" for purposes of the Act will likely be the subject of future litigation.
• The law does not invalidate otherwise enforceable provisions of arbitration agreements. For example, a valid arbitration agreement that applies broadly to employment claims would still be enforceable as to claims not involving "sexual assault" or "sexual harassment," such as claims alleging race discrimination or wage & hour violations
• Employers will need to make strategic decision about whether to explicitly exclude "sexual assault" and "sexual harassment" claims from their arbitration agreements. As discussed above, the decision whether to proceed with arbitration of such claims rests with the employee. In some cases, an employee may choose to take advantage of the more confidential nature of arbitration if available.
• The breadth and procedural impact of the Act will require interpretation by the courts, as well as administrative guidance. For now, several important questions remain unanswered: How will legal actions proceed where some claims are excluded, but others remain subject to binding arbitration? How broadly will courts define what constitutes a "sexual harassment" claim? Will the act also prohibit other pre-dispute contractual remedies, such as mandatory mediation?

With the anticipated passage of this new law and increased focus on arbitration by Congress, now is a good time for employers to review their arbitration agreements.