On February 10, 2022, with bi-partisan support, the Senate passed the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021," which the House of Representatives passed earlier this week. Pending President Biden’s signature, which is expected, this law will shortly be enacted. The Act makes two categories of agreements invalid and unenforceable with respect to claims involving sexual assault and sexual harassment disputes. Those two categories are (1) predispute arbitration agreements, and (2) predispute joint-action waivers. However, these types of agreements may still be enforced if, after the incident occurs, the individual (including a named representative of a class or in a collective action), chooses to go that route. Additionally, the question of arbitrability will be determined by a court, rather than an arbitrator, regardless of the terms of the underlying agreement. This law is prospective only, meaning that only agreements entered into after the ultimate effective date are impacted.

The terms sexual assault dispute and sexual harassment dispute are defined in the Act as follows:

“(3) SEXUAL ASSAULT DISPUTE.—The term ‘sexual assault dispute’ means a dispute involving a nonconsensual sexual act or sexual contact, as such terms are defined in section 2246 of title 18 or similar applicable Tribal or State law, including when the victim lacks capacity to consent.

(4) SEXUAL HARASSMENT DISPUTE.—The term ‘sexual harassment dispute’ means a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.”

Likewise, predispute arbitration agreement and predispute joint-action waiver are also defined in the Act as follows:

“(1) PREDISPUTE ARBITRATION AGREEMENT.—The term ‘predispute arbitration agreement’ means any agreement to arbitrate a dispute that had not yet arisen at the time of the making of the agreement.

(2) PREDISPUTE JOINT-ACTION WAIVER.—The term ‘predispute joint-action waiver’ means 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 form, concerning a dispute that has not yet arisen at the time of the making of the agreement.”

Notably, the law does not require businesses or others with arbitration agreements to specifically carve out or notify the signer that it will not be applicable to sexual harassment or sexual assault disputes. It also does not suggest that an arbitration agreement that does not carve out these two issues will otherwise be unenforceable for other disputes. Therefore, no changes are likely needed to arbitration agreements as a result of this Act. However, employers need to take note of the limited usefulness of arbitration agreements in these contexts.

In addition to this new federal law, employers should be aware of specific state laws that they also have to comply with and that may add additional requirements. For example, a Maryland law, effective October 1, 2018, prohibits employers from requiring employees to arbitrate sexual harassment claims and holds employers liable for attorneys’ fees and costs if they try to enforce an agreement with a prohibited provision. The Maryland law also contains an exception so that it does not apply if prohibited by federal law and includes robust anti-retaliation protections for any employee who fails or refuses to enter into an agreement with a prohibited provision. Another example is the Illinois Workplace Transparency Act, effective January 1, 2020, which prohibits employers from entering into arbitration agreements regarding unlawful employment practices as a unilateral condition of employment or continued employment. Vermont law also prohibits the waiver of a substantive or procedural right or remedy relating to sexual harassment claims, effective July 1, 2018. Other states, such as California and New York, have similar laws that are currently the subject of legal challenges.