UPDATE: As anticipated, President Biden has signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (hereinafter “new law”). The new law amends the Federal Arbitration Act (FAA) to give victims of sexual assault and/or harassment the right to choose whether to bring their claims in court or to arbitrate their claim.  Click here for more information.

The Federal Arbitration Act (FAA) was amended in recent days when both houses of Congress approved the bill, Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (H.R. 4445)[1]. Days before its passage, President Biden issued a Statement of Administration Policy[2] supporting the bill and therefore, it is anticipated that the President Biden will soon sign the bill into law.

H.R. 4445 is seemingly straightforward on its face, but it is important for employers to be aware of the drastic shift in power in favor of certain employees and other persons covered by the law.  The gravamen of H.R. 4445 is to make it easier for victims of sexual assault and/or harassment to choose whether to bring their claims in court or to arbitrate their claims. However, and perhaps unsurprisingly, things are seldom “easy” in the legal world. Accordingly, this article provides key takeaways for employers when analyzing H.R. 4445 and will impart insight to employers who may be wondering how this change may affect them moving forward.

Prospective Parties

Significantly, prospective plaintiffs, not the defendants, get to choose whether to litigate their sexual assault or harassment claims in court or through arbitration.

Indeed, the bill reads: “Notwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault 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.”

To be clear, although this article is framed in an employment context, H.R. 4445 isn’t just limited to the employment context. In addition to employees, other people potentially affected by this law include clients, customers, patients and consumers. Indeed, many businesses that provide consumer services – i.e., ridesharing apps, home improvement contracts, property leases, etc. – require consumers to sign contracts with arbitration provisions that mandate them to arbitrate any legal claims, including those concerning sexual harassment or assault, instead of going to court. Thus, this law will impact many industries and has the potential to significantly raise the cost of litigation throughout the country.

Applicability

Although a party’s allegations control whether a claim constitutes a covered sexual assault or sexual harassment dispute, those terms are given broad scope under the anticipated law. In essentially all circumstances, the applicability of H.R. 4445 to a given case is to be decided under federal law and by a federal judge, not an arbitrator. Under the FAA, if the Court is satisfied, after hearing the parties, that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the Court will order the parties to proceed in arbitration.  However, if the making of the arbitration agreement or the failure, neglect, or refusal to perform the same is in issue, the Court will proceed summarily to the trial thereof. Given that an employee would be permitted to demand a jury in the latter scenario, the cost for employers to resolve these issues will significantly increase.

Under the bill, “[t]he 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,” and, “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.” Further, the bill prohibits mandatory arbitration 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.”

Thus, even if it is seemingly clear that an arbitration agreement is valid and enforceable under this new law based on the fact that the employee’s case does not involve allegations of sexual assault or relate to conduct constituting sexual harassment, either party may demand that a court decide the new law’s applicability and the parties may need to argue their respective interpretations of both the law and the claim(s) itself.  This will further add cost to litigate under this law given that an employee may demand a jury. 

Timing

Notably, H.R. 4445 does not ban any and all agreements between an employee and employer to arbitrate sexual harassment and sexual assault disputes. Instead, it is largely based on timing of both the agreement and the dispute.

Under the bill, “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. Similarly, “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 forum, concerning a dispute that has not yet arisen at the time of the making of the agreement.” Further, the anticipated law will only apply “with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act.”

Employers must investigate all allegations of this nature to determine the exact date of the incident. If the incident arises before the Act is in place and there is a clear arbitration agreement in place, then the old rules apply and the claims may be decided by an arbitrator. Thus, timely investigations are more important now than ever.

Further, the terms of the bill permit an employee and employer to agree to arbitrate sexual harassment and sexual assault disputes provided such agreement arises after the dispute occurs and the employee so agrees in writing. An employee who wishes to ensure the privacy of the information surrounding his or her claim(s) may voluntarily choose to arbitrate his or her claim(s) to avoid any potential embarrassing or sensitive information being made public in a court of law. However, it is expected by these authors that claimants will prefer the federal forum which may permit a jury, if the remedies that the plaintiffs seek are legal in nature, and which give parties the right to appeal.

On the other hand, if an employee and employer enter into an agreement to arbitrate sexual harassment and sexual assault disputes prior to a dispute arising or occurring, and such a dispute arises or occurs on or after the enactment of H.R. 4445, that agreement may be invalid and unenforceable with respect to the portions of the case that relate to the sexual assault dispute or the sexual harassment dispute if the employee elects to pursue in Federal, Tribal or State court. An employer’s endeavor to enforce an arbitration agreement in this scenario would not only be unavailing, but also costly and time consuming because under the FAA, if the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof and an employee may demand a jury for the trial.

Thus, when presented with a dispute of this nature, an employer should ask: (1) when did the parties enter into the agreement, and (2) when did the dispute arise and/or occur? It is expected that future litigation will help clarify when a dispute arises or a claim accrues.

 “SO, NOW WHAT?” – Employers

As guiding principles to be discussed further with counsel, employers are encouraged to consider the following thinking-points and options.

Given that this new law only invalidates predispute arbitration agreements or predispute joint-action waivers with respect to cases which are filed under Federal, Tribal, or State law and relate to the sexual assault dispute or the sexual harassment dispute, employers by no means are required to spend ample resources rolling out entirely new arbitration agreements to replace those that are already in place. Employers may very well continue using their current arbitration agreements, even those that require employees to arbitrate sexual harassment and sexual assault disputes. However, employers should be aware that if they petition to enforce an arbitration agreement in a dispute of this nature, or in a dispute that relates to the sexual assault dispute or the sexual harassment dispute, a federal court would need to hear and determine the applicability of the new law, the making of the arbitration agreement, or the failure, neglect, or refusal to perform the same. And, significantly, employees are permitted to demand a jury on the aforementioned issues.

It remains unclear how this new law will play out in cases that involve multiple claims. The new law may lead to bifurcation of claims – meaning the sexual harassment/assault claims and claims related thereto would proceed in court while the arbitrable claims will proceed in arbitration. This scenario is not ideal for employers due to the complications and costs it would add to resolving disputes, but it may also create burdens to plaintiffs who will also have to fight on two fronts.   On the other hand, if a court finds that the additional claims relate to the sexual assault dispute or the sexual harassment dispute – i.e., a discrimination claim – it is possible that an employer may be forced to defend all of the claims in court, even those that may otherwise be arbitrable on their own. It is expected that this will lead to an increase in sexual harassment/assault filings in court and sexual harassment class claims.

It is anticipated that this new law will ramp up the costs for employers and businesses because more of these claims will be tried in court instead of before an arbitrator. Even if an employer is ultimately successful in enforcing an arbitration agreement, an employee may still force an employer to first have a court, and potentially a jury, decide the applicability of the new law, the making of the agreement, and the failure, neglect, or refusal to perform the same. Given the large role that timing plays in applying this new law, it is likely discovery would be needed to determine when a dispute arose or accrued. Further, the confidentiality often afforded under arbitration may be jeopardized if the parties have to argue regarding the law’s applicability in court. An employer in this scenario may want to take measures to preserve confidentiality – i.e., move for a protective order, seal, etc. – before a court renders a decision as to whether the parties are bound by an arbitration agreement or if they shall proceed in court. And, an employee will have more appellate options if they do not receive a favorable verdict on their claims in court.

The new law will increase the cost of litigation in court for all involved. The new law is silent as to whether or not employers have to give employees notice that they are entitled to the benefits of H.R. 4445. However, given the frequency of these types of claims in the workplace, businesses and groups that rely on the efficiency, and time and cost savings of arbitration, should review their policies and arbitration agreements promptly. It is also recommended for employers to review and update their anti-harassment policies and training to avoid these claims.

[1] https://www.congress.gov/117/bills/hr4445/BILLS-117hr4445pcs.pdf

[2] https://www.whitehouse.gov/wp-content/uploads/2022/02/HR-4445-SAP.pdf