What Does the New Ban on Mandatory Arbitration for Sexual Misconduct Cases Mean for Employers?

On the heels of the #MeToo movement, a new federal law aims to offer more legal options to employees who claim sexual assault or harassment in the workplace.

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 bans employers from enforcing pre-dispute arbitration agreements to handle claims of sexual assault and sexual harassment. In this alert, we’ll share highlights of the law and what employers should keep in mind moving forward.

What Does the New Law Cover?

The new law covers pre-dispute agreements where the employee agrees to pursue their employment claims in arbitration and not in court. It also covers pre-dispute agreements where the employee agrees to pursue their employment claims individually and not jointly in a class or collective action in arbitration. Individual arbitration agreements that cover employment claims have offered employers a powerful tool to avoid or reduce the costly litigation that can come with class or collective actions. And they help to keep workplace disputes confidential, since unlike court records, arbitration proceedings are not public. This new law removes that tool for employers with respect to sexual assault and misconduct claims.

The new law extends to all claims of sexual assault or harassment, whether they arise under federal, state, local or tribal law. Federal Title VII’s ban extends to claims based on sex, including sexual orientation, gender identity and pregnancy.   

Other Key Features of the New Law

• • Any dispute over whether the law applies to an employee’s claim must be decided by a court, not the arbitrator, regardless of what the agreement says.
  • The law does not ban employees from choosing to arbitrate claims for sexual assault and sexual harassment. These are often called “post-dispute” arbitration clauses.
  • The law has retroactive effect. It bans enforcement of pre-dispute arbitration agreements for claims of sexual assault and sexual harassment that were entered into before it was enacted.

Uncertainty on the Horizon

The new law raises many questions about its coverage and impact that may be soon tested in courts. For instance, if an employee brings hybrid employment claims, such as race, religion or national origin, as well as claims for sexual assault or harassment, employers may face costly and piecemeal litigation about whether certain claims should be ruled on by an arbitrator or by a court. Also, while the new law does not mention non-harassment and assault-based sex discrimination (such as where a male employee claims he did not receive a promotion given to a less qualified female employee based on sex), there may be times where discovery reveals facts that raise harassment claims and prompt an employee to challenge the enforceability of the arbitration agreement in court. And there are further questions of how the new law may impact confidentiality, non-disparagement and other common clauses in employment agreements for sexual assault or harassment claims.

Finally, the new law will need to be reviewed against the Supreme Court’s body of caselaw. The Court has long endorsed the validity of pre-dispute arbitration agreements. And its decisions on what issues are reserved for an arbitrator versus a court could conflict with how the new law assigns questions to courts rather than arbitrators and its purported retroactivity.

Next Steps for Employers

This law does not purport to ban pre-dispute arbitration agreements for other employment claims. While the law does not state that current pre-dispute arbitration agreements must expressly exclude sexual assault or harassment claims to comply, employers should assess their agreements to decide if adjustments are needed. Also, employers should review applicable state law on arbitration of sexual misconduct claims, since state laws may differ from the federal statute, and keep track of those laws for developments.

Please contact Rebecca Sha or any member of Phelps’ Labor and Employment team if you have questions or need compliance advice or guidance.