Congress Passes Bipartisan Arbitration Limitation

This week brings a significant change for employment arbitration, as both houses of Congress approved a bill, Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (H.R. 4445), which now heads to the White House for President Biden's signature. This bill amends the Federal Arbitration Act (FAA) to bar pre-dispute arbitration agreements of claims alleging sexual assault or sexual harassment, and includes a bar against any waivers of the right to bring such claims jointly and/or on a class basis.

On February 10, 2022, the United States Senate passed the bill by voice vote with bipartisan support, and earlier in the week, the United States House of Representatives passed the bill by a 335-97 bipartisan vote. At the beginning of the month, President Biden issued a Statement of Administration Policy supporting the bill and urging its passage, so there is little question the president will sign the bill into law promptly. While the president's statement included familiar oppositional myths about arbitration—for example that millions of Americans enter mandatory arbitration clauses "without realizing it until they come forward to bring a claim against their employer"—the strong language emphasizes the bill's goal to "empower[] survivors of sexual assault and sexual harassment by giving them a choice to go to court instead of being forced into arbitration."

Under this anticipated law, a party's allegations first control whether a claim constitutes a covered sexual assault or sexual harassment dispute, and those terms will be given broad scope. The relevant language reads:

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 new law also requires that courts—not arbitrators—decide whether a claim constitutes sexual harassment or sexual assault, even if the arbitration agreement includes a delegation provision delegating these decisions to the arbitrator.

The anticipated law will go into effect upon enactment and does not appear to be retroactive as to claims or disputes that have already arisen or accrued. Indeed, the relevant language makes plain: "This Act, and the amendments made by this Act, shall apply with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act."  The language thus appears to apply to allegations of sexual assault or sexual harassment occurring after enactment. On the other hand, even if the employer has an arbitration agreement already in place before the enactment of the new law, it appears claims or disputes that arise after enactment of the law would not be arbitrable under such agreement.

For employers, big questions surround how to proceed with the new anticipated law and existing arbitration agreements. Should employers amend or replace existing arbitration agreements? The answer may depend on the language in employers' current agreements. For example, if an employer's current arbitration agreement includes language carving out "disputes that cannot be arbitrated or subjected to pre-dispute arbitration agreement under controlling federal statute," such language is probably adequate.

As guiding principles to be discussed further with counsel, we encourage employers to review and evaluate current agreements to make sure they include, at base, language that carves out non-arbitrable claims under federal law. Additionally, employers should consider adding more specific language to agreements for new employees that specifically includes a carve-out for sexual harassment and sexual assault carve-out under the anticipated law.

Practically speaking, this law does not affect arbitration of disputes that do not involve allegations of sexual harassment or sexual assault. Even so, it will likely lead to an increase in sexual harassment/assault filings in court and maybe even sexual harassment class claims. And this will also potentially lead to bifurcation of claims. In other words, sexual harassment and assault claims will proceed in court while arbitrable claims will proceed in arbitration. That is not ideal for employers, but may also create burdens to plaintiffs who will also have to fight on two fronts.

Unlike the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which is limited in scope, there are other pending laws that would invalidate employment and other types of arbitration altogether, e.g., the Forced Arbitration Injustice Repeal (FAIR) Act. It remains to be seen if this law is the end of changes to the FAA or just the beginning. Business and groups that rely on the fairness, efficiency, and time and cost savings of arbitration should get more involved to protect the continued viability of employment arbitration agreements going forward.