A new law signed by President Biden brings significant changes to employers’ ability to require arbitration of certain disputes with employees and could lead to an increase in sexual assault and sexual harassment claims against employers in court.  On March 3, 2022, President Biden signed into law the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” (the “Act”).  The Act amends the Federal Arbitration Act (“FAA”) to provide that predispute arbitration agreements and predispute joint-action waivers relating to sexual assault and sexual harassment disputes are unenforceable at the election of the person or class representative alleging the conduct.  The Act took effect immediately upon signing.

 Key Provisions of the Act

The new Act restricts enforcement of predispute arbitration agreements and predispute joint-action waivers over “sexual assault disputes” and “sexual harassment disputes.”  A “sexual assault dispute” is defined as a “dispute involving a nonconsensual sexual act or sexual contact… including when the victim lacks capacity to consent.”  A “sexual harassment dispute” is a “dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.”  The Act does not expressly cover  retaliation claims.  If parties disagree as to whether the new law covers a particular dispute, the law provides that the determination is one for a federal court and not an arbitrator,  regardless of whether an arbitration agreement delegates such determination to an arbitrator.

The law also broadly defines predispute arbitration agreement as “any agreement to arbitrate a dispute that had not yet arisen at the time of the making of the agreement,” which presumably includes any employment agreement and separation agreement with an agreement to arbitrate.  A predispute joint-action waiver is an agreement “that would prohibit, or waive the right of one of the parties… 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 making the agreement.”

The Act only applies to claims that “arise or accrue” on or after the date of the law’s enactment (March 3, 2022), and likely covers predispute arbitration agreements or joint-action waivers that were entered into before the law’s enactment.  However, the new law does not retroactively apply to claims that arose prior to March 3, 2022.

Notably, the new law specifies that a covered arbitration agreement or joint-action waiver is unenforceable at the election of the person or class representative bringing the sexual assault or harassment claim.  Thus, employees subject to one of these agreements may still choose to arbitrate such claims.

The new law is the latest in a series of efforts by state and federal legislators to curb the enforceability of predispute arbitration provisions in the context of employment claims.  Over the last few years, many states have attempted to curb the enforceability of predispute arbitration agreements through state legislation, but many of those state laws faced preemption challenges under the FAA.  In 2018, the Senate approved an amendment to the Department of Defense appropriations bill, the Franken Amendment, that withholds federal funds from certain federal contractors who require employers or independent contractors to resolve any claim under Title VII of the Civil Rights Act of 1964 or any tort “arising out of sexual assault of harassment” through arbitration.

 Implications for Employers

Employers should review any existing predispute arbitration agreements to determine whether revisions may be needed in light of the new law.  This could include adding carve-outs for sexual assault or harassment claims or language that expressly provides the employee’s right to elect to bring sexual assault or sexual harassment disputes in court or arbitration, or making other updates to ensure that the agreement can be enforced as to other types of claims (unless a state law provides otherwise).  Additionally, the passage of the Act underscores the need for employers to focus on prevention and correction of sexual harassment in the workplace, before claims arise, including by reviewing and updating anti-harassment policies and procedures.

Finally, employers should note that the new Act could be just the first of many restrictions on arbitration in the coming years, in light of President Biden’s campaign promise to “ban employers from requiring their employees to agree to mandatory individual arbitration.”  Therefore, employers should continue to monitor closely any new legislation impacting predispute arbitration agreements to understand the possible impact on existing and future agreements.