Employers can no longer compel employees into arbitration following a complaint of sexual harassment or sexual assault.
Earlier this month, President Joe Biden signed the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” which Congress passed with bipartisan support.
Under the law, employers cannot enforce a “predispute arbitration agreement,” which many employees are required to sign upon hire or during their employment.
The law defines a predispute arbitration agreement as an agreement to arbitrate a dispute that has not yet arisen at the time of the making of the agreement. Following a dispute, the parties can agree to arbitrate a claim in lieu of taking the case to federal or state court.
Under these agreements, employees cannot litigate a sexual harassment dispute against the employer in state or federal court, including in front of a jury, but must resolve the dispute in arbitration.
Arbitration allows the dispute to be resolved confidentially in front of an arbitrator, who is typically a retired judge or attorney. Some argue this arrangement unfairly minimizes the awards for victims, and allows employers to enjoy a shroud of secrecy around these cases.
The law also contains a provision that may impact settlement agreements when an employee is provided severance or other transition pay. The law also prohibits “predispute joint-action waivers” which the law defines as “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 has not yet arisen at the time of making the agreement.”
Many settlement agreements contain language that waives the employee’s right to participate in a future class action.
In practical terms, litigating sexual harassment cases in federal or state court is time-consuming and expensive for all parties, so arbitration was seen as a way to level the playing field and resolve disputes in a more cost-effective manner. Unfortunately, arbitrations have become essentially mini-trials and can ultimately be as expensive and time-consuming as litigating in court.
In cases where there is no dispute that sexual harassment occurred, parties are well advised to consider mediation — where the parties agree upon a trained mediator who can amicably resolve the dispute upon agreement of the parties. Usually, both parties end up a little disappointed because they have to negotiate, but ultimately this is a good alternative to arbitration or litigation.
In signing the law, Biden said, “Forced arbitration silences survivors of sexual assault and harassment. It shields predators instead of holding them accountable and gives corporations a powerful tool to hide abuse and misconduct. And it compels the people of our nation — and most often the women of our nation — to sign away one of their most fundamental rights — the right to seek justice in court.” He added that the legislation “will apply retroactively,” which will invalidate “every one of these agreements, no matter when they were entered into.”
Employers should review existing employment agreements and amend provisions that compel arbitration of sexual harassment or sexual assault claims.
This law only applies to sexual harassment and assault, not to other employment disputes that might arise such as harassment based on race, disability, national origin, age, and other protected characteristics.