The majority of U.S. employers have elected to adopt the use of mandatory arbitration agreements, requiring that all employment-related claims be arbitrated and not litigated. Pursuant to a series of landmark United States Supreme Court decisions, such mandatory arbitration agreements are permissible and enforceable under the Federal Arbitration Act. Most such agreements contain class action waivers that the United States Supreme Court has also ruled are permissible and enforceable, meaning that such employment law claims can only be pursued on an individual basis and not on a group or class basis.
A number of states (i.e., California, New York, etc.) have attempted to enact state statutes that would prohibit or limit employers' use of such arbitration agreements. These efforts have generally been held to be ineffective because they are preempted by the Federal Arbitration Act. Thus, the only way to legally limit the enforceability of such arbitration agreements would be to amend the Federal Arbitration Act that was enacted by Congress in 1925.
That is exactly what Congress recently voted to do. Pursuant to the "Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021," there will be a "carve out" for claims of sexual harassment or sexual assault that, unlike all other types of employment law claims, can no longer be forced out of the civil litigation process and into arbitration, even if the claimant previously signed an otherwise binding arbitration agreement. This law will also expressly permit such claims of sexual harassment or sexual assault to be brought on a group or class basis, notwithstanding the terms of an otherwise enforceable arbitration agreement.1
Supporters of this legislation call it ". . . one of the most significant changes to employment law in years." The most frequent argument made in support of this legislation is that it allows for such claims to be prosecuted publicly instead of being forced into otherwise private arbitration. Opponents of mandatory arbitration are already publicly asking, "Why only claims of sexual harassment and not claims of other types of prohibited discrimination, such as race discrimination?"
This recent legal development raises two questions for employers:
- Is this new law a reason to forego mandatory arbitration agreements altogether?
- If I already have mandatory arbitration agreements, do I have to amend all of them?
A logical answer to question number 1 appears to be: why give up the benefits of being able to arbitrate, rather than litigate, the dozens of other types of claims that employees can bring, simply because two types of such claims can no longer be compelled into arbitration? As to question number 2, while arbitration agreements could be drafted or redrafted to expressly "carve out" claims of sexual harassment and sexual assault, if an arbitration agreement does not contain such an express "carve out," then it simply could not be enforced in response to a claim of sexual harassment or sexual assault.
Whether this legislation will lead to further attacks on the widespread utilization of mandatory arbitration agreements in employment is yet to be determined.
While he has publicly announced his intent to sign this new legislation, as of the publication of this article, President Biden has not yet signed it.
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