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The future of mandatory arbitration in the workplace is changing. On March 3, 2022, President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (Act). This Act amends the Federal Arbitration Act by making pre-dispute arbitration agreements entered into by employees and employers unenforceable for sexual assault and sexual harassment claims. Pre-dispute joint action waivers, which require employees to bring claims individually and not as a member of a class, are also unenforceable with respect to sexual assault and sexual harassment claims in the workplace. Employees now have the option to pursue these claims in court. Employees may still choose to arbitrate sexual assault and sexual harassment claims. However, the agreement to arbitrate must come after the alleged sexual assault or sexual harassment to be binding.

Unanswered Questions

The Act leaves some important questions unanswered that will be left up to the courts to resolve. One of the biggest questions surrounds the scope of the Act. If an employee brings a sexual assault or sexual harassment claim along with other employment-related claims against the employer (i.e.-racial harassment), will the employee be able to bring all of the claims in court together, or will the employee only be able to litigate the sexual assault or sexual harassment claim and be forced to arbitrate the remaining claims?

Another unknown is whether the passage of this Act will lead to further restrictions on mandatory arbitration. On March 17, 2022, the United States House of Representatives voted to pass the Forced Arbitration Injustice Repeal Act of 2022 (FAIR Act). This proposed bill would void all pre-dispute arbitration agreements in employment, consumer, antitrust, and civil rights disputes. The FAIR Act has a very broad scope and would completely alter the future of arbitration. While the FAIR Act was passed in the House, the bill lacks bipartisan support and is therefore much less likely to pass in the Senate.

What This Act Means for Employers

While the full scope of the Act’s impact on the future of employment arbitration is unknown, there are some things employers should be prepared for. Moving forward, the cost for employers to resolve a sexual assault or sexual harassment dispute will likely increase. Defending claims through the court system is much more time-consuming and expensive than resolution through arbitration. For cases that ultimately proceed to a jury trial, successful employees may receive higher awards from a jury than if the employee was successful through arbitration.

The number of class-action sexual harassment claims in the workplace may rise. The Act gives individuals the right to void pre-dispute joint action waivers and pursue sexual assault and sexual harassment claims on a class basis. While there are still many hurdles to overcome to successfully bring a claim on a class basis, the publicity of one employee bringing a sexual harassment or sexual assault claim could lead other employees to band together in future class actions.

With the option to bring sexual assault and sexual harassment disputes to court, employees likely have more leverage for larger settlements at the pre-litigation stage. Employers have a strong incentive to avoid the time-consuming and costly litigation process. The extent to which these changes will impact employee settlement leverage remains to be seen.

Finally, employees who choose to litigate sexual assault and sexual harassment claims will be bringing the facts and allegations that underly the claims to the public record. One reason employers favor arbitration is the confidentiality that arbitration provides. Arbitration proceedings are typically private, and the outcome of the proceedings can be kept confidential. The level of confidentiality in arbitration varies greatly from the litigation process. The litigation of sexual assault and sexual harassment claims will likely lead to much more public scrutiny, which can cause serious damage to an employer’s reputation and have lasting effects on a business.

How Employers Can Prepare

With all of that in mind, employers should consider taking the following next steps. First, employers with employment agreements that contain mandatory arbitration clauses, including joint action waiver provisions, will need to review and revise the existing language to ensure compliance with the Act.

Employers should also review their anti-harassment policies and procedures. To help prevent sexual assault and sexual harassment claims, employers should ensure that they have the appropriate policies and complaint procedures in place. Employers must also make sure that the organization is properly responding to claims of harassment if and when these claims arise.

According to the Equal Employment Opportunity Commission, “[p]revention is the best tool to eliminate harassment in the workplace.” Employers should regularly conduct harassment training for all employees to help prevent harassment in the workplace. Training helps set the tone that the employer takes harassment claims seriously and that this behavior will not be tolerated.

Employers should also watch for future litigation and interpretation of this Act. Interpretation of the Act’s unanswered questions will greatly impact the future of arbitration of all employment-related claims. Additionally, employers should be aware of any federal and state law developments on mandatory arbitration, such as the status of the FAIR Act previously addressed. Some states are also considering additional state restrictions on mandatory arbitration. Employers must ensure they are staying up to date on any new developments.

Employers Council is available to help members navigate this new law through online resources, consulting, and training. Contact the Member Experience team by email or call 800-884-1328.