On March 3, 2022, President Biden signed into law the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.” The Act amends the Federal Arbitration Act (“FAA”) to prohibit the enforcement of predispute arbitration agreements against complainants for claims involving allegations of sexual harassment or sexual assault, both outside and within the employment context.
The new section of the FAA provides, in part:
“[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.”
We expect the Act will have a substantial impact on how sexual harassment/assault cases are litigated.
First, the Act prohibits the enforcement of arbitration agreements if a “case” filed under state or federal law “relates to” the ”sexual assault dispute or the sexual harassment dispute.” The Act defines “sexual assault dispute” as “a dispute involving a nonconsensual sexual act or sexual conduct,” and defines “sexual harassment dispute” as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” The Act was originally drafted to cover all claims alleging “sex discrimination disputes,” but was later limited to sexual harassment disputes and sexual assault disputes.
Second, the Act does not invalidate predispute arbitration agreements, but instead permits a complainant to elect to file sexual harassment or sexual assault claims in court, regardless of whether the complainant executed a predispute arbitration agreement that covers such claims. The Act also covers class and collective claims if those claims relate to sexual harassment or sexual assault.
Third, the Act specifies that it “shall apply with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act,” i.e., March 3, 2022, regardless of when the arbitration agreement was executed. Pursuant to the Act, courts have the authority to determine whether the Act applies to certain claims, “irrespective of whether the agreement purports to delegate such determinations to an arbitrator.”
Despite a stark partisan divide in Congress, the House of Representatives and Senate passed the Act with extensive bipartisan support. Proponents of the Act argue that sexual assault and sexual harassment claims should not be cloaked in secrecy, and that the publicity of these allegations often motivates businesses to effectuate real change. At the White House signing ceremony, President Biden noted that “between half and three-quarters of all women report that they have faced some form of sexual harassment in the workplace, and too often they are denied a voice and a fair chance to do anything about it.” President Biden further explained that “some survivors will want their day in court, and that should be their choice and nobody else’s choice,” and referred to the signing ceremony as a “momentous day for justice and fairness in the workplace.”
Critics of the Act have argued that it will have an adverse impact on businesses and will increase the number of frivolous claims brought against employers, businesses, and individuals, further backlogging an already congested court system and undermining the intended scope of the FAA.
While the Act is one of many similar laws stemming from the #MeToo movement, it is more likely to withstand legal challenge and may act as a template for further restriction of the FAA. As the #MeToo movement emerged and expanded, so did increased scrutiny on particular laws and agreements, including confidential settlements and mandatory arbitration agreements. In response to this scrutiny, various states passed legislation designed to ban the use of mandatory arbitration agreements and permit complainants to file complaints publicly in court. Many of these laws, however, should not withstand legal challenges because under United States Supreme Court precedent, the FAA “preempt[s] any state rule discriminating on its face against arbitration—for example, a law prohibiting outright the arbitration of a particular type of claim.” Kindred Nursing Ctrs. Ltd. P’Ship v. Clark, 137 S. Ct. 1421, 1426 (2017). Accordingly, only Congress was in a position to directly narrow the expansive scope of the FAA, which it has now done. Other pending federal legislation may continue to limit the scope of mandatory arbitration agreements, including the Forced Arbitration Injustice Repeal Act, which would bar the enforcement of predispute arbitration agreements related to employment, consumer, antitrust, or civil rights disputes, as well as class or collection action waivers.
It will be critical for businesses and employers to review and evaluate their arbitration agreements, including those with class and collective action waivers. As noted above, the Act does not prohibit or invalidate predispute arbitration agreements in general, nor does it prohibit claims for sexual harassment and sexual assault from being heard in arbitration. It simply affords the complainant the choice of forum. Challenges regarding the scope of the Act are likely to play out in courts given the Act’s substantial ambiguities, and employers should consult with legal counsel regarding the terms of their predispute arbitration agreements, and whether those agreements should be revised in light of the Act.