FAA and state arbitration laws
Provisions of the new Act
What employers need to do
On 3 March 2022, President Joe Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. The Act amends the Federal Arbitration Act (the FAA) to allow employees who are bound by an arbitration agreement with their employer to bring their claims of sexual assault or sexual harassment in court.
Class action waivers will now also be deemed invalid and unenforceable as regards claims of sexual assault and sexual harassment.
The new Act applies to claims that arise or accrue on or after the law's effective date.
FAA and state arbitration laws
Under the FAA, arbitration has for many years been deemed a favoured method of dispute resolution – including in employment disputes. The federal courts have consistently upheld valid agreements to arbitrate and repeatedly rejected challenges based upon a purported disparity in bargaining power.
As recently as 2018, the US Supreme Court held in Epic Systems Corp v Lewis that the FAA requires enforcement of arbitration agreements, including those with class action waivers, according to their terms.
In response to the Epic Systems decision and the #MeToo Movement, some states, including California and New York, passed laws that restrict forced arbitration of sexual harassment claims. Those state laws have faced court challenges, including on the basis that they are pre-empted by the FAA.
The new Act amends the FAA as follows:
[A]t the election of the person alleging conduct constituting a sexual assault dispute or sexual harassment 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.
The Act defines "sexual assault dispute" as "a dispute involving a nonconsensual sexual act or sexual contact", including when the victim lacks capacity to consent, and "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 lists examples of conduct that qualifies as sexual harassment:
- unwelcome sexual advances;
- unwanted physical contact that is sexual in nature, including assault;
- unwanted sexual attention, including unwanted sexual comments and propositions for sexual activity;
- conditioning professional, educational, consumer, health care, or long-term care benefits on sexual activity; and
- retaliation for rejected unwanted sexual attention.
A "joint-action waiver" includes class and collective action waivers. Even if an arbitration agreement provides that an arbitrator shall determine the validity or enforceability of the agreement, the Act requires those issues to be determined by a court under federal law.
Critically, the new law gives employees who are subject to an arbitration agreement the option to choose whether to pursue their sexual assault and sexual harassment claims in arbitration or court. Some litigants may prefer the superior confidentiality of arbitration, where there is no public docket. The Act makes it clear that the choice of forum rests with the employee, not the employer, regardless of how the agreement reads.
The Act invalidates only the portion of an employment agreement requiring an employee to arbitrate or waive a class or collective action as to sexual assault or sexual harassment claims – not the entire agreement. Therefore, employers should review and revise their existing arbitration agreements to make them consistent with the Act's provisions.
Employers should also be prepared for more employees with these purported claims to choose to pursue them in court, either individually or as part of a class or collective action. Employers that want to incentivise employees to choose arbitration should consider paying for the full costs of arbitration and/or paying for the costs of pre-arbitration mediation as part of the arbitration process.
Employers should be prepared for further restrictions on the use of arbitration agreements at both the federal and state level. The Biden Administration has expressed its intent to work with Congress to address the arbitration of claims regarding race discrimination, unfair labour practices and wage theft.
Litigation concerning the scope of sexual harassment under applicable federal, tribal or state law is also anticipated, in particular whether it would extend to claims of harassment on the basis of sexual orientation.
For further information on this topic please contact Catherine T Barbieri or Samuel A Haaz at Fox Rothschild LLP by telephone (+1 215 299 2839) or email ([email protected] or [email protected]). The Fox Rothschild LLP website can be accessed at www.foxrothschild.com.