Congress Bans Arbitration Agreements for Sex Harassment and Assault Claims, Effective Immediately

March 9, 2022

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“the Act”) became the law of the land on March 3, 2022. While terse in language, the Act will have broad implications.

What does the Act say?

The new law amends the Federal Arbitration Act (“FAA”) and allows employees subject to pre-dispute mandatory arbitration agreements to pursue in court their claims related to sexual assault or sexual harassment. The law allows workers to choose how to pursue their cases after sexual assault or harassment has occurred.

The language of the Act is quite simple. It states that “no pre-dispute arbitration agreement or pre-dispute 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.”  It also provides that courts, not arbitrators, shall decide using federal law whether and when the terms of this statute may apply to any arbitration agreement regardless of what the agreement says about scope or arbitrability of issues.

The Act passed the U.S. House of Representatives by 335-97 on February 7, 2022 and the U.S. Senate by voice vote on February 10, 2022. The Act went into effect immediately upon the president’s signing last week and will apply to disputes that arise beginning on March 3, 2022.

What does it mean?

This enactment comes after years of developing case law favoring arbitration agreements generally and in the employment context in particular.  Most notably, the steady march advancing arbitration agreements reached a significant milestone on May 21, 2018, when the United States Supreme Court held that employment arbitration agreements with class action waivers requiring individual arbitration are enforceable under the FAA. See Epic Systems, Corp. v. Lewis.  It further held that Section 7 of the National Labor Relations Act (the “NLRA”), which protects employees’ rights to engage in concerted activities, does not affect the breadth and scope of the FAA and does not limit the right of the contracting parties to agree to an arbitration clause and class action waiver in the employment context.

Thus, less than 4 years ago, it seemed that arbitration clauses would rule the employment world.  That said, even Epic Systems did not purport to rule that all such clauses would be enforceable.  Precedent leading up to Epic Systems outlined what such clauses needed to include to avoid unconscionability defenses. Under such precedent, courts must still evaluate particular arbitration clause or agreement on a case-by-case basis to determine whether terms are fair. See ATT Mobility v. Concepcion. Nevertheless, if the clause provides for an arguably fair and reasonably affordable and efficient process for individual dispute resolution, the employer can avoid public litigation and class actions brought by the signing employee.

In Epic Systems, however, Justice Ginsburg dissented and characterized the opinion as “egregiously wrong”, but also saw potential distinctions between wage and hour cases and discrimination cases.  While commentators anticipated Epic Systems likely to be applicable in any employment context, Congress clearly took the cue from Justice Ginsburg and drew the distinction expressly in the form of legislation.

Bottom line, this means that while Epic Systems remains good law and arbitration agreements and class action waivers remain enforceable to the extent they concern wage and hour claims, employers can no longer rely on such agreements when it comes to issues involving sexual harassment or sexual assault.

What has changed?

Outside of sexual harassment and assault claims, nothing.  While the Act bans arbitration clauses for sexual assault or harassment claims, it does not ban them for other types of sex discrimination or any other discrimination claim.  That means, for now, broad arbitration and class action waivers covering those topics may still be enforceable, assuming they pass the fairness tests described in ATT Mobility v. Concepcion and other case law.

Again, as noted above, the Epic Systems case also stands. Arbitration agreements and class action waivers for wage and hour claims remain enforceable.  For now.

Also notable is that while private parties may be bound by arbitration agreements, the EEOC is not. Private parties can continue to file charges of the discrimination for the EEOC to investigate and possibly litigate.  This has always been true, and the efficacy of these clauses has never been complete.

Now what?

Like we always say, review your contracts and policies for compliance. Determine what you really need. Review with counsel if your documents and practices comply with the law. Take clear and consistent action going forward.  But know this, Congress and the EEOC have taken the position that sexual harassment and assault allegations need to be exposed. Indeed, EEOC applauded the passage of the Act.  The federal government has taken away denial and cover up as a means to deal with uncomfortable situations.  The best way to deal with these issues is to prevent them from happening in the first place through leadership and strong corporate culture in the workplace, supported by clear and fair policies and administrative support.  It’s hard work, but counsel can help with planning and guidance.