Arbitration agreements and class-action waivers have gotten a lot of hate lately. Towards the end of 2021, and following a multi-year injunction, the Ninth Circuit reinvigorated California’s AB 51, which generally prohibits (but does not necessarily stop) employers from requiring employees to enter into pre-dispute arbitration agreements as a condition of employment or receipt of an employment-related benefit.
Now, the U.S. Congress is taking its shot. On March 3, 2022, the President signed into law Congress’s bipartisan “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” which significantly restricts the force and effect of pre-dispute arbitration and joint-action waiver agreements. Here is what you need to know:
What Does The Law Do?
The law amends the Federal Arbitration Act (FAA) to allow plaintiffs with pre-dispute arbitration agreements or a pre-dispute joint-action waiver agreements (including class action waivers) – at their election – to ignore those agreements with respect to a case relating to a “sexual assault dispute” or a “sexual harassment dispute” filed under Federal, Tribal, or State law (e.g., FEHA and Title VII).
The law also provides that disputes over whether something constitutes a “sexual assault dispute” or a “sexual harassment dispute” – and thus, whether the employee gets to make their election – must be decided by a court and not an arbitrator, even if the arbitration agreement gives the arbitrator authority to decide it.
For purposes of this law, a “sexual assault dispute” is any dispute involving a nonconsensual sexual act or sexual contact, including when the victim lacks the capacity to consent, and a “sexual harassment dispute” is any dispute relating to conduct that is alleged to constitute sexual harassment under applicable federal, tribal, or state law (including the Fair Employment and Housing Act).
Practically speaking, employers facing a claim from an employee that relates in some way to sexual harassment or sexual assault will almost certainly see the employee elect to ignore any pre-dispute agreements that would prevent them from filing their claim in court where they can get a jury trial.
Do You Need To Change Your Agreements?
The answer is uncertain.
It is important to note that nothing in the new law prevents an employer from including sexual assault or sexual harassment claims within the scope of arbitration agreements or class-action waivers; it simply lets the employee avoid enforcement of those agreements in cases relating to such claims.
However, there are many uncertainties concerning how this law will operate or be interpreted, including whether it can affect agreements that would not otherwise fall within the scope of the FAA, which has historically only extended to contracts that are tied to interstate commerce. On this point, employers may consider re-wording their agreements.
Many pre-dispute arbitration agreements expressly invoke the name of the FAA, even if it may not apply, because it has commonly been thought that the FAA provides more protection to employers than the California equivalent, aptly named the California Arbitration Act (CAA). Notably, the CAA does not currently have a carve-out for “sexual assault disputes” or “sexual harassment disputes,” meaning that there may be a chance that arbitration agreements can avoid this new law entirely if they fall “beneath the radar” of the FAA. Removing express references to the FAA may give those agreements a fighting chance if an employer wants them enforced against a sexual harassment or abuse dispute, although at the possible cost of the protections of the FAA.
This is not a simple analysis and requires a careful consideration of your business and its operations – indeed, many appeals have been fought over whether a contract “involves interstate commerce” and thus falls within the scope of the FAA – but it is something that one of the attorneys in our Employment Group can assist with.
What Should Employers Do Now?
- Employers looking to avoid these issues entirely should first focus on preventive measures designed to prevent sexual harassment and abuse in the workplace, and this starts with having good harassment prevention policies and training. Employers should make sure their policies and handbooks are up to date and that they are meeting their new-employee and bi-annual-employee training requirements under the Fair Employment & Housing Act.
- Employers with pre-dispute arbitration agreements and class-action waivers should plan ahead for possible fights over arbitration and consider speaking with counsel regarding potential revisions to their agreements (and to make sure they are enforceable as currently written).
- For employers who do not already utilize arbitration agreements: don’t give up hope – if done correctly, these agreements can still be beneficial for many other types of cases. Employers should consult with counsel regarding whether and how to incorporate them into their human resources portfolio.
If you have any questions about arbitration agreements, class action waivers, policy or handbook reviews, employment training (including for harassment prevention), or any other issue relating to employment law, please contact one of our attorneys
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