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October 19, 2022 Feature

Ending Forced Arbitration

By Barbara Harris
The Act ends the era of employers being able to unilaterally compel arbitration in sexual harassment cases.

The Act ends the era of employers being able to unilaterally compel arbitration in sexual harassment cases.

VioletaStoimenova / iStock / Getty Images Plus via Getty Image

What Is the New Law?

After years of legislative and political debate, and as a further outgrowth of the #MeToo movement, on March 3, 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (H.R. 4445) (the Act). Known by some as the EFASASHA (which hardly rolls off the tongue), the Act adds a new Chapter 4 to the Federal Arbitration Act (FAA) and is the first major amendment to the nearly 100-year-old statute in decades. The Act renders unenforceable, at the claimant’s election, any mandatory pre-dispute arbitration agreement “with respect to a case” that “relates to” a sexual harassment or sexual assault dispute. It also renders unenforceable (again, at the claimant’s option) any pre-dispute joint action waiver regarding those disputes. 9 U.S.C. § 402(a).

Is the Act Retroactive?

The Act applies to any dispute or claim that “arises or accrues” on or after March 3, 2022. P.L. 117-90, § 3. While not technically retroactive, the Act may be applied to limit the enforceability of arbitration agreements entered into before March 3, 2022, if the dispute arose on or after that date. Several courts have held that the date the claim accrued, not when the charge or lawsuit is filed, determines whether the Act applies. See, e.g., Walters v. Starbucks Corp., 2022 WL 3684901, *3 (S.D.N.Y. Aug. 25, 2022) (citing cases).

What Is the Law Designed To Do?

The law is designed to grant court access to alleged victims and eliminate the proverbial cone of silence that often enshrouds the arbitration of sexual harassment and abuse claims with confidentiality, shielding alleged wrongdoers from negative publicity or consequence. As one court recently stated, the Act “unequivocally ends the era of employers being able to unilaterally compel arbitration in sexual harassment cases.” Steinberg v. Capgemini Am., Inc., 2022 WL 3371323, at *2 (E.D. Pa. Aug. 16, 2022). However, some argue that the law does not address confidentiality concerns head-on because arbitration proceedings and awards, although more private than court proceedings, are not inherently secret or confidential. Some also contend that the bill ignores the potential benefits to employees in arbitration, such as lower costs and quicker resolution, although employees desiring arbitration may still choose it.

What Does the Act Cover?

Although seemingly straightforward, the Act raises many questions regarding its scope and practical implications. The biggest unknown is whether the law only bars mandatory arbitration of individual claims of sexual assault or harassment (a narrow view) or prohibits arbitration of any case in which these claims are raised along with others not covered (a broad view). Alternatively, courts may adopt a middle ground, where the Act bars mandatory arbitration of sexual harassment and assault claims and any other related claim in the case with a common factual nexus.

Most employers’ counsel do not believe the courts will take the broad approach because doing so is counter to established arbitration policy and jurisprudence. The FAA embodies a liberal public policy in favor of enforcing arbitration agreements. Courts traditionally sever non-arbitrable claims from arbitrable claims and compel arbitration of claims covered by an arbitration agreement. Though courts have discretion about whether to stay litigation of nonarbitrable claims, they have no discretion to refuse to compel arbitration of arbitrable disputes simply because nonarbitrable claims are pending in the same lawsuit. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985). This precedent supports the narrow approach generally favored by employers.

Not surprisingly, plaintiffs’ counsel generally support a broad reading of the statute. Among other things, the narrow approach may hamper plaintiffs from publicly pursuing sexual harassment claims in court. For example, if a plaintiff alleges sexual harassment and race discrimination in the same case, employers may be able to compel arbitration of the race discrimination claim and stay the sexual harassment claim, delaying its resolution until the arbitrable claims are resolved. This result would seem counter to the Act’s purpose. While the uncertainty lingers, employers expect they may see an initial uptick in “tag-on” sexual harassment or assault claims to avoid mandatory arbitration, or at least test the Act’s scope.

Practitioners agree on one thing – the law’s scope is ambiguous, and this issue is likely to be litigated. (As of this writing, the federal courts have not yet opined in any reported decision on the scope of the Act in this context.) The Act is clear, however, that the courts, not an arbitrator, will determine the law’s scope and applicability to any claim, even if the arbitration agreement expressly delegates questions of arbitrability to the arbitrator. 9 U.S.C. § 402(b).

What Doesn’t the Act Cover?

The Act does not appear to cover many claims commonly asserted with sexual harassment claims, such as other civil rights or tort claims. This may change depending on how the courts interpret the Act’s scope. For the time being, many employment-related disputes, including wage and hour and discrimination claims, remain subject to mandatory arbitration and class and collective action waivers if the parties have otherwise entered into an enforceable arbitration agreement. The Act also does not cover or restrict confidentiality or non-disparagement provisions in settlement or other agreements.

Do Employers Need to Amend Their Arbitration Agreements?

The Act does not per se invalidate arbitration agreements covering sexual harassment or sexual assault claims—it only renders them unenforceable at the employee’s option. The possibility remains that some employees may prefer the more private forum that arbitration offers for litigating very personal disputes. The public nature of court pleadings – and their online availability to potential employers – may have the unintended consequence of harming employees in future job searches.

Employers’ counsel vary in their recommendations about specifically “carving out” sexual harassment or sexual assault claims from their arbitration agreements. Some believe that a carve-out is unnecessary because most well-crafted arbitration agreements already include a carve-out for those claims that cannot be arbitrated as a matter of law. Others recommend including a carve-out to provide greater transparency and enhance the enforceability of the arbitration regarding clearly arbitrable claims.

Depending on applicable state law, some employers may benefit from adding a jury trial waiver (which is not expressly prohibited by or covered by the Act) in their arbitration or other employment agreements. Employers also should provide that the agreements are governed by the FAA, as amended by the Act, and include a severability clause.

What Are the Challenges in Cases with Arbitrable and Nonarbitrable Claims?

Employers wanting to maximize their contractual arbitration rights can move to sever nonarbitrable from arbitrable claims, and then move to compel arbitration and stay litigation of the nonarbitrable claims. However, litigating with the same party in multiple venues creates additional concerns, such as the possibility of issue or claim preclusion, inconsistent rulings, or double damages recovery. For this reason, some employers may prefer waiving the right to compel arbitration and litigating all claims in court rather than having to defend claims on multiple fronts. Employers also may want to avoid the expense and time of motion practice over the Act’s scope. If arbitration aims to promote efficiency, extensive court litigation about what can and cannot be arbitrated may undermine those goals. Public relations considerations may also make it less compelling to push for arbitrating these claims.

Some practitioners suggest that parties may be more willing to opt for mediation at an earlier stage of a dispute, even before filing a formal lawsuit or arbitration demand. Best practices will likely evolve as the courts begin to interpret the new law.

For more information on employment arbitration and the latest developments regarding the Act, search online for Practical Law’s Practice Note, Employment Arbitration Agreements (US).

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By Barbara Harris

Barbara Harris is a Senior Legal Editor of Thomson Reuters Practical Law’s Labor & Employment Law Service. She regularly writes and speaks about employment law issues, including employment arbitration, restrictive covenants, and new legal developments. Before joining Thomson Reuters, Barbara spent more than 25 years in private practice as a commercial litigator and employment lawyer at law firms in New York and California.