To update our previous advisory, as expected, President Biden signed a bill that significantly limits the use of mandatory arbitration for claims involving sexual assault or sexual harassment. Titled "Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021," H.R. 4445, which passed with bipartisan support, prohibits enforcement of pre-dispute mandatory arbitration and joint class action waiver clauses for claims alleging sexual assault or sexual harassment subject to arbitration under the Federal Arbitration Act ("FAA").
The law is effective immediately.
Impact of H.R. 4445 for Employers
For years, many employers have used mandatory arbitration agreements for employment-related claims, including class action waivers. These have been permissible and enforceable under the FAA. H.R. 4445 changes that result by allowing victims of sexual assault or sexual harassment to have their claims adjudicated in court, rather than the more confidential setting of private arbitration.
Specifically, H.R. 4445 amends the FAA, as follows:
- The law addresses only pre-dispute arbitration agreements involving sexual assault or sexual harassment claims. That is, employers and employees may still enter into arbitration agreements after the alleged sexual assault or sexual harassment "arises" or "accrues."
- The law allows the alleged aggrieved party of sexual assault or sexual harassment to choose the forum where they want to have their claims adjudicated, whether in court or arbitration. In other words, the alleged aggrieved party may choose to invoke the arbitration clause and proceed in arbitration or proceed in court.
- The enforceability of an arbitration agreement or class/collective action waiver must be determined by the court, not an arbitrator, irrespective of if the arbitration agreement purports to delegate this determination to an arbitrator.
- The law does not apply retroactively. As such, H.R. 4445 does not invalidate pre-dispute agreements against sexual assault and sexual harassment claims that "arise" or "accrue" before the bill is signed into law.
- Finally, the law applies "to a case" that "relates to the sexual assault dispute or the sexual harassment dispute." As written, the bill does not make clear whether this provision means that an entire lawsuit that includes claims of sexual assault or sexual harassment, along with other common employment claims such as discrimination and wrongful discharge, must be adjudicated in civil court. Or rather, are the sexual assault or sexual harassment claims adjudicated in court and other employment claims allowed to be adjudicated in arbitration.
Due to ambiguous statutory language, employers may see an influx of cases where employees insert claims for sexual assault or sexual harassment in cases concerning other common employment claims simply to prevent their lawsuit from being adjudicated in arbitration.
What Employers Should Know
Because the law is effective immediately, we recommend employers take the following steps:
- Carefully review and revise existing arbitration agreements to ensure consistency with the expected amendments to the FAA.
- Closely monitor state law developments for further restrictions as various states, including California, are considering more draconian legislation that may prohibit arbitration agreements altogether.
- When confronted with a sexual assault or sexual harassment claim, employers should contact legal counsel to assess the application of the law. H.R. 4445 does not ban all mandatory arbitration clauses—it only invalidates those clause(s) with respect to sexual assault and sexual harassment claims, even if the alleged aggrieved party signed an otherwise enforceable arbitration agreement.
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