Substance of the Act
As noted, the Act renders predispute arbitration agreements voidable at the option of an employee alleging a sexual harassment or assault claim. The Act defines sexual harassment disputes broadly, as those “relating to conduct that is alleged to constiute sexual harassment under applicable Federal, Tribal, or State law.”
Sexual assault disputes are more narrowly defined as those involving nonconsensual sexual acts or sexual contact, as such terms are defined in U.S. criminal law or similar state or tribal law.
Additional details are fleshed out in Section 402(a) of the Act, which states in sum that the employee alleging sexual harassment or sexual assault conduct, or any representative of any class or collective action involving the same conduct, may invalidate any predispute arbitration agreement or predispute joint-action waiver. Essentially, any plaintiff subject to a predispute agreement may decide its enforceability in their subsequent action against a defendant.
More detail appears in Section 402(b), which provides that the court shall determine the validity and enforceability of any agreement instead of an arbitrator, irrespective of whether the party objecting to the arbitration challenges the agreement itself or other terms in the agreement, and notwithstanding any applicable delegation clause in the agreement.
These sections articulate two critical provisions of the Act. First, only the individual or class representative alleging sexual misconduct may initiate arbitration proceedings. Second, only the court, not an arbitrator, may decide the arbitrability issue. Neither the employer nor the arbitrator has a say so.
The Act is not limited to employment cases, but it will have the greatest impact in this area. So, for example, if a plaintiff who is a party to a predispute arbitration agreement with their employer files a sexual harassment lawsuit in federal court, the employer would not be able to stay the lawsuit pending arbitration, at least not over the plaintiff's objection. The same would hold true for a class representative in a class or other collective action.
Notably, the Act’s effective date is March 22, 2022, meaning that perhaps millions of existing employee arbitration agreements now contain voidable provisions purportedly mandating arbitration for sexual harassment and assault cases. Of course, prior disputes settled in arbitration may not be relitigated in light of the Act.
Policy and Statutory Benefits Promoted by Proponents
Arbitration is a critical tool for resolving disputes between employees and employers. An often-cited data point is that sixty million employees, more than 50 percent of all nonunion private sector employees, are subject to arbitration agreements in their employment. Practitioners and academics have cautioned about the ubiquity of the agreements in the employment context, especially considering mass employment in the gig and modern economy.
Stakeholders may anticipate that, due to the public nature of the court system, the Act will encourage both “better behavior” from employers responding to sexual harassment and assault complaints and better workplace prevention efforts. But any change to employer behavior will likely take years to fully appreciate and understand.
For these reasons, there is an ongoing discussion of whether arbitration has gone “too far,” deviating from and failing in its intended purpose to achieve efficient outcomes for all involved parties. For instance in California, employers often require mandatory arbitration of all claims and bar employees from filing class actions, Private Attorneys General Act claims, and collective and representative actions also bar employees from seeking relief through state agencies. Employers may rightfully seek to protect themselves against lawsuits, but they do so by conditioning employment on the employer's preferred resolution—private arbitration.
While good faith discussions continue about the appropriate use of arbitration, the changing political landscape (including a newfound willingness to address and redress longstanding societal and political issues), the #MeToo movement, and the resolution of high-profile sexual harassment and assault cases via arbitration have all led to rare bipartisan recognition of a salient issue with a reasonable solution. These interests, the social context, and the attendant equitable goals underlie two distinct goals and benefits in the Act.
First, proponents view the Act as an important step towards addressing a glaring power imbalance between employers and employees inherent in many workplace sexual harassment and assault situations. Instead of allowing employers to control the process at the start of employment, during employment, and after termination, employees now retain control generally over how a dispute is resolved.
Second, the substantive goal of the statute is achieved. Employees alleging sexual harassment and assault now have an affirmative choice. Do they want to bring a claim via a lawsuit or attempt resolution through arbitration? In fact, this law may result in no changes to the dispute process for employees and employers. Employees may still choose arbitration to save time, to retain more confidentiality than they would have in court, or simply to better suit their needs. But if employees now wish to bring their claims in court for reasons of accountability, to promote public interest litigation, or because they want to exercise their legal rights, they can now choose to do so. And this new autonomy granted to employees achieves the underlying policy objective of rebalancing the important relationship between employers and employees.
Critics of the Act argue that invalidating agreements to arbitrate sexual assault and harassment claims, especially when agreed on as a condition of employment, may result in a flood of exclusions and carveouts for arbitration. But states like California have passed similar legislation that prohibits noncompete agreements within the state. As with this Act, these prohibitions were enacted to remedy what was viewed as a gross power imbalance—employers exerting unreasonable control over an employee’s future movement and ability to work.
The result of this legislation was not a deluge of employees wreaking havoc by engaging in unfair competition or stealing employer clients without reprieve. Instead, employees in California can now express their right to at-will employment in the state without undue influence from any employer who may have leveraged power against them at the time of hiring. In fact, the Federal Trade Commission has indicated that it will develop rulemaking in 2024 to ban noncompete clauses nationwide due to issues of wage suppression, reduction in innovation, and unfairly blocking the start of new businesses.
The Act thus joins other legislation designed to achieve a social goal rooted in a perceived power imbalance. By limiting the power of employers, the prohibition against forced arbitration seeks to put employees who have experienced sexual harassment and assault on more equal footing with their employers by giving them an affirmative choice in how they resolve the dispute.
Opponents’ Views
Of course, the Act has critics among practitioners, academics, and stakeholders, who worry about the effects of the arbitration prohibition and whether it will achieve its stated purpose.
First, from a skeptic’s point of view, why should cases involving sex be treated differently than cases involving, for example, race? Given America’s history of racial hostility and discrimination, it seems it should perhaps be the other way around. But proponents may view the Act as the thin end of the wedge. Arguably, the Act is a step towards eliminating employment arbitration one cause of action at a time—first sex, then religion, then race, and so on. Alternatively, the Act’s proponents may find it reasonable and appropriate to shame sexual harassers and assaulters in public through the litigation process. But they should first consider if there is empirical evidence suggesting the rate of sexual harassment and assault has increased since 1991, when the U.S. Supreme Court first permitted the arbitration of civil rights claims in the employment context, including sex harassment claims
Though there is often a disconnect between the legislative intent and legislative results, other critics advocate for the perennial idea of leveling the playing field between the big guy (the employer) and the little guy (the employee), an idea that has supported every legislative intervention into the labor market since the 1930s. Since then, in the name of justice and fairness, so much labor and employment legislation has been enacted that the ABA’s Labor and Employment Section boasts more than 16,000 members. But it is not clear that the playing field is now level, critics might argue. Thus, we should continue to recognize that individuals who put their assets, credit, and talent at risk to create a business should have more say about the terms and conditions of employment than the individuals seeking employment.
Further, advocating for justice and fairness in the workplace has not always worked well in practice. Consider Detroit, the cradle of the automobile industry and the UAW, or Pittsburgh, the cradle of America’s steel industry. Today, cars and steel are manufactured in many places. But not so much in Detroit or Pittsburgh. Many reasons account for this, but chief among them was organized labor’s pursuit of what it refers to as industrial fairness, justice, and peace. Arguably, many of the “little guys” in and around Detroit and Pittsburgh would prefer “unfair” car or steel manufacturing jobs to the jobs they now hold.
Today’s gig economy may also support retention of simpler forms of dispute resolution like arbitration given the expansive nature of gig workers and the inherent flexibility of the work. Arguably, employees benefit from and may prefer flexible, part-time work arrangements, which provide more work and lifestyle choices and less stress. In turn, employers find that flexibility improves recruitment and retention, which are the bedrock to any successful business model. Gig work also avoids the many costs and potential liabilities stemming from the myriad state and federal legislative interventions that apply to full-time employment.
Additionally, from a legal perspective, the U.S. Supreme Court rejected the argument that employment arbitration is less fair than litigation more than 30 years ago in Gilmer. The Court considered the same legal and practical arguments advanced in favor of the sexual harassment/sexual assault Act and determined that there is no reason to assume arbitration panels will be biased; that discovery is no more important in employment cases than other complex cases subject to arbitration; that the same relief is available in arbitration and in court; and that unequal bargaining power in the employment context is no greater than unequal bargaining power in areas where arbitration is clearly beneficial, like the securities industry. And since 1991, employment law practitioners have become accustomed to arbitration, and they widely agree that arbitration is generally faster, less expensive, and more predictable than litigation.
Further, there is no real evidence that employees fare worse in arbitration than in litigation. One article referenced in the House Committee Report published with the Act included no proof supporting the proposition that employees fared better in court than in arbitration. Instead, the article merely referred the reader to another article by the same author and a collaborator. This second article revealed that, between 2003 and 2007, if one relied entirely on cases that were actually tried, plaintiffs did fare better in court than in arbitration. But this hardly proves the point, given the very small percentage of cases actually tried to verdict
Also, the vast number of employment cases, perhaps on the order of 95 percent or more, are not tried. They are dismissed or settled. It is impossible to draw reliable conclusions based on a data set that excludes as much as 95 percent of the relevant data. Other data provides little support for the idea that employees fare better in litigation than in arbitration. For instance, according to one source, only one percent of plaintiffs prevail in federal employment discrimination, harassment, and retaliation cases at trial. Further, of the 72,000 cases analyzed, 75 percent were settled, and employers prevailed on summary judgment in 13 percent. Thus, existing data appear not to support the contention that the Act will produce “better” outcomes for employees who have experienced sexual harassment or assault in the workplace.
What’s Next for Employees and Employers under the Act?
Both more and more persuasive information about outcomes for arbitration and litigation in these cases must be gathered. In addition to considering how employees fare in the two settings, research should focus on a host of relevant questions. What is the total cost of resolving disputes through arbitration as opposed to litigation? Are employees choosing to litigate these claims instead of using arbitration? Will employers be able to successfully challenge any aspects of the Act? Does arbitration resolve disputes more quickly than litigation, as justice delayed is justice denied? Is arbitration more predictable?
It will likely take years to see behavioral changes from aggrieved employees. Employees must become aware of their new rights under the FAA, case law must be developed as employers challenge the carveout, and employees must decide if litigation or arbitration is best suited for resolving their sexual harassment and assault claims. Until then, academics, policy makers, and stakeholders will need to closely monitor the Act’s direct and indirect effects. The success of the carveout will likely influence both future changes to the FAA and the use of arbitration in general.
A bipartisan group of lawmakers has already begun discussing legislation to prohibit arbitration of age discrimination claims through the same mechanisms employed in the sexual harassment/sexual assault Act. Notably, despite opposition from similar stakeholders who opposed the sexual harassment/sexual assault Act, the proposed age discrimination legislation is supported by Republicans and Democrats alike, and it will likely be introduced and passed soon. Thus, the fears concerning the Act and its effects appear not to be deterring action on additional arbitration prohibitions.
Moreover, as proponents seek to add similar bans on mandatory arbitration in other areas, such as for wage theft, racial discrimination, and unfair labor practices, critics will have to wait and see if the anticipated effects of the Act materialize. Certainly, discussions about arbitration carveouts and prohibitions have only just begun.
