Congress Amends the Federal Arbitration Act and Bans Arbitration Agreements Covering Sexual Harassment and Sexual Assault Claims

Seyfarth Synopsis:  For more than twelve years, there have been efforts in Congress to limit the scope of mandatory employment arbitration agreements to exclude sexual harassment and sexual assault claims.  Following the “Me Too” movement, there was a renewed push in Congress, as well as legislation in several states, to limit the scope of covered claims in employment arbitration agreements.  Now, on February 10, 2022, Congress passed significant new legislation amending the Federal Arbitration Act:  The “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” which precludes employers from mandating that employees arbitrate sexual harassment or sexual assault claims.  President Biden is expected to sign the bill into law.   As a result, this is a good opportunity for employers with arbitration programs—or those considering implementing such programs—to review their programs both to ensure compliance and to confirm that the programs continue to advance their business and strategic goals.

As we previously reported (here and here), in recent years a bipartisan group in Congress has taken a hard look at arbitration agreements that require employees to arbitrate claims for sexual harassment or assault.

On February 10, 2022, the Senate passed H.R. 4445, known as the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.”  The House of Representatives already passed H.R. 4445 on February 7, so the legislation now proceeds to President Biden for his signature.  President Biden has indicated he supports the legislation.  Thus, H.R. 4445 is expected to be signed into law shortly.

H.R. 4445 is a significant change to the Federal Arbitration Act.  Senate Majority Leader Chuck Schumer called the legislation “one of the most significant changes to employment law in years.”  The legislation modifies the FAA as follows:

• H.R. 4445 permits any person alleging sexual harassment or sexual abuse, at his or her election, to invalidate an arbitration agreement or class/collective action waiver that otherwise would require the sexual harassment/sexual abuse claim to be arbitrated.
• H.R. 4445 permits the named representative of a class or collective action bringing sexual harassment or sexual assault claims to likewise invalidate an arbitration agreement or class/collective action waiver, including an arbitration agreement that covers putative class/collective members (i.e., the named representative can invalidate agreements he or she is not a party to).
• H.R. 4445 applies not just to arbitration agreements, but also to standalone class or collective action waivers that purport to prohibit or waive the right of employees to participate in joint, class, or collective actions.
• In the event that a party challenges the validity or enforceability of an arbitration agreement or class/collective action waiver covered by H.R. 4445, that dispute shall be determined by a court applying federal law, rather than by an arbitrator —even if the arbitration agreement contains a delegation clause that would otherwise require the arbitrator to determine arbitrability.
• H.R. 4445 applies to any “dispute or claim that arises or accrues” on or after the date the legislation is enacted.  Thus, if the parties to an arbitration agreement are already in arbitration, that arbitration will not be affected by H.R. 4445.  And clearly, conduct alleged to constitute sexual harassment or sexual assault that occurs after enactment cannot be subject to mandatory arbitration regardless of what agreements may already be in place.  Less clear for employers with existing arbitration agreements is what happens when conduct occurs prior to enactment, but claims have not been asserted or disputed until after enactment.
• H.R. 4445 permits parties to voluntarily choose to arbitrate any claims, including sexual harassment/assault claims, provided that the parties enter into that agreement to arbitrate after the dispute has arisen.

Thus, H.R. 4445 operates to remove sexual harassment and sexual assault claims from employment arbitration.  While the law does not appear to require affirmative amendment of existing agreements, such agreements will not be enforceable against sexual harassment and sexual assault claims.  Employers with broad arbitration agreements covering all claims between an employer and an employee that don’t already include a carve-out for sexual harassment or sexual assault claims should consider whether to clarify or amend existing agreements, as well as changes for agreements rolled out in the future or used with new hires.    

Employers should also continue to monitor developments at the federal and state level.  As we previously reported (here), there are a number of efforts underway in various states across the country to either ban mandatory arbitration agreements in the employment context outright (as in California) or ban arbitration agreements that cover, for example, all discrimination, retaliation, and harassment claims (such as in New Jersey).  And although H.R. 4445 came about as a result of the “Me Too” movement, it would appear to be a small leap to adopt the same reasoning to ban mandatory arbitration of racial, disability, national origin, and any other type of discrimination and harassment claims.

Given these developments, now is a good time for employers to reconsider their arbitration programs and the purposes behind those programs, to ensure that their arbitration policies continue to further the company’s objectives.  One possibility, for example, would be for employers to scale back mandatory arbitration programs to only cover wage-hour and similar claims with a high probability of class/collective action treatment.  But such considerations should be made based on the nature of the employer’s business and the particular legal risks facing the company, and in consultation with all stakeholders, including the company’s attorneys.