As we previously reported, arbitration agreements have come under increasing scrutiny in recent years, especially with regard to claims for sexual harassment/assault arising during employment.
A number of states have already attempted to limit employers' ability to require arbitration of such claims. For example, state legislatures in California, Maryland, New Jersey, New York, Vermont, and Washington have passed statutes in recent years limiting employers' ability to require arbitration of sexual harassment and (depending on the state) other claims.
However, most states' efforts in this regard have conflicted with the Federal Arbitration Act ("FAA") and are preempted by the federal statute. For example, one federal district court earlier this year held that the New York law prohibiting arbitration of harassment claims is preempted by the FAA. While preemption is not necessarily a sure-thing—the Ninth Circuit earlier this year appeared to limit the FAA's preemptive reach—the prevailing view among federal courts, including the Supreme Court, has been that state laws seeking to restrict arbitration agreements are impermissible in the face of the strong federal policy promoting arbitration under the FAA.
Because the FAA preempts only state laws, not other federal statutes, there have been occasional efforts in Congress by opponents of arbitration to enact a federal law limiting or outright prohibiting arbitration in the employment setting. These efforts have not previously advanced very far. But some recent bills have bipartisan support and may have a chance at passage.
First, Senators Kirsten Gillibrand (D-NY) and Lindsey Graham (R-SC) jointly sponsored the Ending Forced Arbitration of Sexual Assault & Sexual Harassment Act of 2021 (S. 2342). A companion bill has been introduced in the House (H.R. 4445). The Senate bill has 17 other cosponsors, including 10 Democrats and 7 Republicans, while the House bill—introduced by Representatives Cheri Bustos (D-IL) and Morgan Griffith (R-VA)—has 13 Democrats and 4 Republicans as additional co-sponsors. The Act would amend the FAA to prohibit pre-dispute arbitration agreements, including agreements with class- or collective-action waivers, for claims involving sexual assault or sexual harassment. The Senate bill was recently approved unanimously by the Senate Judiciary Committee and "reported out" for consideration by the full Senate. The House bill was similarly approved by the House Judiciary Committee on a bipartisan vote of 27-14. Thus, the Act is now ready for consideration by the full Senate and House.
Second, the Resolving Sexual Assault and Harassment Disputes Act of 2021 (S. 3143) was recently introduced by Senator Joni Ernst (R-IA). The bill would amend the FAA to (1) prohibit arbitration of sexual assault claims and (2) permit arbitration of sexual harassment claims provided that the agreement does not contain a confidentiality provision unless the parties agree otherwise after the claim has arisen, along with other procedural fairness requirements. The prospects for this bill are uncertain.
Third, and much less certain of passage, is the more well-known Build Back Better Act (H.R. 5376). Among the many provision in the Act is language to overrule the Supreme Court's decision in Epic Systems Corp v. Lewis by banning collective action waivers in arbitration agreements. This bill passed the House but faces unanimous Republican opposition, and it's passage in the Senate is uncertain.
These federal developments demonstrate that some version of an arbitration bill tailored to sexual assault and harassment claims has a very good chance at becoming law. Employers with arbitration programs should monitor events in Washington (as well as statehouses) and be prepared to amend their arbitration agreements should one of the federal bills under consideration become law.
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