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By: Courtney Mazzio
Yesterday, a bill passed with overwhelming support in Congress that will significantly impact the ability of employers to enforce mandatory arbitration contracts when faced with sexual harassment claims. Specifically, the proposed Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 amends the Federal Arbitration Act (FAA) to give employees who are parties to arbitration agreements with their employers the option of bringing their claims of sexual assault or sexual harassment in arbitration or court. President Biden is expected to sign it shortly.
If signed into law, this bill will apply to existing mandatory arbitration clauses, but only with respect to a “dispute or claim that arises or accrues on or after the date of the Act’s enactment.” The bill would also ban the use of arbitration clauses in the future, meaning the vast majority of sexual harassment claims will proceed in court. While some companies voluntarily ended the practice a few years ago, there are many who still incorporate broad arbitration provisions into everything from their employment agreements to consumer contracts. As the bill gives employees the choice of proceeding in court or arbitration, it will not necessarily halt arbitrations of these matters.
As enacted, the Act applies only to “a case which is filed under Federal, Tribal, or State law and relates to the sexual assault and sexual harassment claims.” This means that otherwise valid arbitration agreements remain valid and enforceable with respect to other types of claims. The Act also applies to invalidate arbitration agreements and class or collective action waivers with respect to sexual assault and sexual harassment claims arising or accruing after the date of the Act’s enactment. That said, we anticipate litigation over the scope of the law.
There could also be future bills on the horizon that address mandatory arbitration clauses more broadly, including for claims of racial discrimination, wage and hour disputes, and unfair labor practices. Employers should evaluate their employment agreements to make the necessary changes for the future and stay tuned for further updates on their continued ability to utilize arbitration clauses in other contexts.
Please contact your FMG attorney for more information on how to keep up with these actively changing laws. Find an FMG labor attorney here.