President Biden is expected to soon sign into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “Act”), which was recently passed by both houses of Congress. President Biden has long supported measures to limit mandatory arbitration clauses in general and specifically endorsed the Act, which received bipartisan support.
The Act will amend the Federal Arbitration Act to limit every employer’s ability to mandate predispute arbitration of an employee’s claims of sexual harassment or sexual assault. The salient language provides:
Notwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.
The Act will have a broad impact. The definitions of “sexual harassment” and “sexual assault” cover claims brought not only under Federal law, but any “similar” or “applicable” “Tribal or State law.” Employers will not only be prohibited from requiring predispute arbitration of such claims, but predispute class or collective action waivers of such claims will also be void.
While the Act will take effect immediately after it is signed into law, it does not appear to have retroactive effect. Rather, the Act provides that it will “apply with respect to any dispute or claim that arises or accrues on or after the date of enactment” of the Act. Since the Act applies only to predispute claims, then presumably employers and employees may agree to arbitrate a claim after the claim arises.
Open questions remain about how courts will interpret the Act’s provisions and apply it to different scenarios. It is anticipated that employees will challenge employers’ mandatory arbitration agreements as a whole—even when employers seek to enforce them as to claims that fall outside of the Act—to the extent that the agreements purport to apply to now off-limits sexual harassment and sexual assault claims. So, employers should review their current arbitration agreements to make sure that they incorporate appropriate “carve outs.” Employers should take steps to ensure that any mandatory arbitration agreements limit their scope only to claims that can lawfully be subject to such a requirement.
While the scope of the Act covers only claims of sexual harassment and sexual assault, as a practical matter, the Act could weaken the power of mandatory arbitration for all employment claims. Employees may bring sexual harassment and/or sexual assault claims, in addition to unrelated claims that fall outside of the Act, in an attempt to circumvent arbitration altogether. The end result will present strategic questions for employees and employers alike. For example, should employers seek to bifurcate claims that can and cannot be subjected to arbitration? The notion of the pursuit of parallel claims in both arbitration and court is undesirable—likely for both parties. And for employers, bifurcation would undermine many of the reasons that make arbitration an attractive forum for dispute resolution.
It remains to be seen how the Act will affect workplace arbitration more broadly, which is something that likely will play out in the courts. While certain pundits have characterized the Act as a “compromise” between parties who desired to invalidate all mandatory predispute arbitration programs and those who did not, others view this the first step in reaching the goal of invalidating all mandatory predispute arbitration programs. Employers will need to continue to closely monitor this rapidly changing landscape.