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On March 3, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which will nullify forced arbitration clauses in sexual assault and sexual harassment cases. Following the #MeToo movement, many states have enacted legislation to limit the scope of claims covered in employment arbitration agreements, but the act is the first federal limitation.
A brief history of the Federal Arbitration Act
The act amends the Federal Arbitration Act. The FAA was enacted in 1925, and at that time its purpose was to ensure the validity and enforcement of arbitration agreements in “maritime transaction[s] or … contract[s] evidencing a transaction involving commerce[.]” 9 U.S.C. § 2. Throughout history, there has been much litigation regarding what a “contract evidencing a transaction involving commerce” includes, and to which arbitration agreements the FAA applies. In addition, many states have attempted to ban arbitration or enact laws disfavoring arbitration agreements as opposed to other contracts throughout the years. But the U.S. Supreme Court held that the FAA “preempts any state rule discriminating on its face against arbitration — for example, a ‘law prohibit[ing] outright the arbitration of a particular type of claim.’” Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1426 (2017) (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341 (2011). Given states’ prior efforts to ban arbitration, it was only a matter of time until action at the federal legislative level occurred.
How will the act affect employers and employees?
Though many employers have moved away from forced arbitration clauses, the practice is still popular with larger companies. Under the act, employers will no longer be able to require employees to abide by arbitration clauses in situations involving sexual assault or sexual harassment. Because the act is retroactive, the ban will apply even if an employee and employer previously agreed to such a clause, for example in an employment or severance agreement. Further, although a forced arbitration clause is likely to arise in the context of employment agreements, the act applies to any type of agreement that attempts to require arbitration of claims of sexual assault or sexual harassment. Last, the issue of whether the act applies to a specific arbitration clause is to be determined under federal law.
The act only applies to claims regarding sexual assault and sexual harassment, and it does not outright ban arbitration of those claims but gives the victim the option to pursue such claims in court even if previously bound by an arbitration agreement. Notably, the act does not apply to other claims of discrimination (such as discrimination on the basis of race, age, religion or national origin) or claims of retaliation. The act defines a sexual assault dispute as “a dispute involving a nonconsensual sexual act or sexual contact … including when the victim lacks capacity to consent.” There is also reference to federal law and state or tribal law defining sexual assault, and those definitions are to be included if applicable. Similarly, a sexual harassment dispute is defined as “a dispute relating to conduct that is alleged to constitute sexual harassment under Federal, Tribal, or State law.”
What’s next?
Counsel for employers should be examining the following questions:
1. Which agreements have mandatory arbitration provisions? Should those agreements be amended to carve out claims for sexual assault and sexual harassment?
If the employer has agreements with mandatory arbitration provisions, employers may choose to amend those agreements. As it stands, existing employment agreements that contain a forced arbitration provision with respect to sexual assault or sexual harassment are fully enforceable with the exception of the forced arbitration provision. Further, examining whether a carveout for sexual assault and sexual harassment claims carries a cost to it, but there are also benefits to the employer if they wish to arbitrate claims that do not involve sexual assault or sexual harassment.
2. Should the employer bifurcate cases that involve both claims of sexual assault or sexual harassment and other claims?
Such bifurcation could mean double the costs for the employer and also litigating in two separate forums. Further, counsel will need to determine how two cases, possibly concerning the same set of facts, will be able to proceed at the same time and how various rulings and discovery could affect the companion case.
3. Is it worthwhile for the employer to continue to arbitrate claims that do not involve sexual assault or sexual harassment?
This will be a cost and resources determination but should also take into account how possible bifurcation could impact the decision to still arbitrate some claims.
4. Does the employer have experienced litigators as a part of its counsel who have litigated sexual assault and sexual harassment claims?
Given claims for sexual assault and sexual harassment have a much higher likelihood of ending up in litigation, it will be important for employers to know who to contact when such a claim arises, and to be able to consult with such counsel to determine how to prevent such claims and any possible defenses available.
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While the act has the potential to create more litigation in the areas of sexual assault and sexual harassment, its purpose is to prevent such claims as employers become more aware of the consequences of such actions. Because this new law chips away at arbitrable claims, it is likely that it will be challenged. Thus, in addition to preparing for this new wave of litigation, counsel should continue to monitor the status of this act.•
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Elizabeth Roberson is a senior associate at Krieg DeVault LLP. Opinions expressed are those of the author.
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