The End of Mandatory Arbitration and Class and Collective Action Waivers in Sexual Harassment and Sexual Assault Disputes

On March 3, President Biden signed H.R. 4445, the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.” The Bill amends the Federal Arbitration Act (FAA) to invalidate predispute agreements to arbitrate claims of sexual assault and sexual harassment, so that plaintiffs asserting such claims will have the option to proceed in court.

Background

The FAA generally permits employers to enforce predispute mandatory arbitration agreements with employees, precluding claimants from publicly filing claims in federal and state court.

As a consequence of the #MeToo movement and to enable aggrieved employees subject to workplace harassment to expose their allegations in court, some states have enacted legislation banning mandatory arbitration agreements related to workplace discrimination and harassment claims. However, as discussed in our previous alert, these state-led efforts to carve out an exception to the FAA have largely been futile. For example, New York courts have regularly found that the state’s law banning mandatory arbitration agreements for discrimination claims in the employment context is preempted by the FAA. Consequently, employers have been able to enforce mandatory arbitration agreements and compel employees to file their claims and allegations in confidential arbitration proceedings rather than on the public court dockets.

Amendments to the FAA

The Bill adds to the FAA a new chapter that addresses the enforceability of arbitration agreements and class and collective action waivers only in disputes involving sexual assault and sexual harassment.

Specifically, the Bill provides:

[A]t 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. (Emphasis added.)

A “predispute arbitration agreement” means any agreement to arbitrate a dispute that had not yet arisen at the time of the making of the agreement.

A “predispute joint-action waiver” means an agreement, whether or not part of a predispute arbitration agreement, that would prohibit or waive the right of one of the parties to the agreement to participate in a joint, class or collective action in a judicial, arbitral, administrative or other forum, concerning a dispute that had not yet arisen at the time of the making of the agreement.

The Bill requires that any determination of whether the ban applies to a particular dispute shall be made under federal law and by a court rather than by an arbitrator.

The Bill applies to any dispute or claim that arises or accrues on or after March 3, 2022.

Consequences

Notably, the Bill does not automatically prohibit the enforcement of arbitration agreements and class or collective action waivers. Instead, claimants are able to choose whether to pursue their sexual harassment or sexual assault claim in court or through arbitration.

The text of the Bill raises some questions that may result in future litigation and the necessity for guidance from the courts. If a plaintiff brings a claim of sexual harassment or assault in a case with multiple causes of action, will the plaintiff be able to void the predispute arbitration agreement in its entirety and bring the entire case to court? Does the answer depend on whether the claims derive from the same facts — that is, will the answer be different for a gender discrimination claim than for a wage and hour claim? And if claims filed in the same case are to be split between court and arbitration, should one proceeding be stayed while the other is litigated, or will they proceed simultaneously? Depending on how these questions are resolved, parties may be compelled to litigate in two jurisdictions, with the attendant increased expense, duplicative discovery (and generally broader discovery than would be typical in arbitration) and possibly inconsistent results.

In light of this amendment to the FAA, employers should consider whether to modify their arbitration agreements and class or collective action waivers, including those contained in employment agreements.

Please contact a member of Kramer Levin’s Employment Law department with any questions or concerns about the topics raised in this alert.