Ban on Mandatory Arbitration of Sexual Harassment Claims Enacted 

The law can be found here.

The Act took effect immediately and retroactively applies to all existing arbitration agreements - even those signed prior to the law’s enactment. However, prior cases that have already been completed through mandatory arbitration cannot be reopened and litigated in court. We previously discussed the passage of this legislation in Congress, as well as a bill pending before the Massachusetts Legislature that would similarly make such provisions unenforceable. To revisit that discussion, read here.

Background 

The United States Arbitration Act, more commonly referred to as the Federal Arbitration Act (“FAA”), grants an explicit right to parties to resolve legal disputes privately through arbitration. Passed by Congress in 1925, the FAA authorizes parties to agree to circumvent the federal and state courts and resolve their dispute with an arbitrator determining the facts and rendering a binding decision on the dispute. The FAA applies to employment contracts in the United States (except contracts of seamen, railroad employees, or any other class of workers involved in foreign or interstate commerce).  

It has become common for employers to require mandatory arbitration of employment claims, including sexual harassment claims. It is estimated that 60 million Americans are subject to mandatory arbitration in connection with their employment. Generally, the FAA preempts state laws that interfere with arbitration agreements. Indeed, a number of states, including California, Maryland, New Jersey, New York, Vermont, and Washington, have already passed laws limiting the use of mandatory arbitration for sexual harassment claims, but these laws were challenged as preempted by the FAA.

Analysis

The Act, which adopts the sexual harassment definitions under the federal, tribal, and state laws in the jurisdiction where the employee is located, forbids the use of mandatory arbitration provisions in cases of sexual assault or sexual harassment. Employees now have the option to choose whether to litigate their sexual assault or sexual harassment claims in federal, state, or tribal courts or through arbitration. The decision rests entirely with the employee – even if they previously signed an agreement limiting their legal remedies to arbitration only.

Additionally, whether the employee signed an agreement waiving their right to collective legal action, employees may choose to bring suit individually or as a class-action lawsuit for sexual assault or sexual harassment claims. The Act does not prevent employers from mandating arbitration for cases that do not involve sexual assault or sexual harassment. The law further provides that any dispute as to the applicability of the Act will be determined under federal law and in court, rather than by an arbitrator, without regard to whether the arbitration agreement purports to delegate the authority for such decisions to an arbitrator.

Where an employee alleges sexual harassment or assault claims, as well as other claims, the employer faces a difficult decision. Under this scenario, employers need to decide whether to permit all claims to be decided by a court or whether to split the claims between the two forums. If there is a forum split, the court might also need to determine, among other things, the order of proceedings and whether to stay proceedings for one set of claims pending the outcome of the other. Federal courts will likely address this on a case-by-case basis.

The Act is not limited exclusively to the area of employment law. It also potentially includes clients, customers, patients, and consumers because mandatory arbitration clauses are buried in the fine print of many everyday digital click-through “agreements.” For example, ridesharing apps often require the user to enter a contract requiring them to arbitrate any legal claims concerning sexual harassment or assault. Mandatory arbitration provisions applying to those alleging sexual assault and harassment apply in all these contexts.

Takeaways

• Employers should review and update their arbitration agreements to ensure they comply with the Act. This means clarifying that sexual assault or sexual harassment claims may, but need not, be arbitrated. Employers should also review their class action waivers for necessary revisions.
• Given that employers can no longer mandate arbitration of sexual assault and sexual harassment claims, these allegations and liability determinations will be publicly available. The result is a potentially more costly outcome that is subject to the whim of jurors as well as the social and political environment of the day. Employers must prepare for this new reality. With this, there may be additional scrutiny of the employer’s policies. The implementation of a written anti-harassment policy as well as consistent harassment prevention training of employees is paramount to minimize liability and successfully defend such claims in court.
• Only sexual assault and sexual harassment claims are subject to the FAA amendment. Mandatory arbitration is still lawful for other employment claims and is a useful tool for limiting exposure. Employers must use caution to evaluate the type of claims made by employees when mandating arbitration. In circumstances where both sexual harassment/assault and other claims are alleged, employers must balance the potential risks of pursuing some claims in arbitration while the harassment and/or assault claims proceed in court. Careful evaluation of the type of claim brought is important to avoid running afoul of the amendment’s restrictions.
• There are a number of efforts underway in various states across the country to either ban mandatory arbitration agreements in the employment context outright (as in California) or ban arbitration agreements that cover, for example, all discrimination, retaliation, and harassment claims (such as in New Jersey). It would not be unreasonable for employers to anticipate that state and local legislatures may adopt the same reasoning to ban mandatory arbitration of race, gender, disability, national origin, and other types of discrimination and harassment claims.

ArentFox Schiff lawyers will continue to monitor expected litigation concerning the Act and are available to answer any questions you may have or to assist with updating employment agreements, harassment prevention policies, investigations, and training programs.