Proposed Federal and State Legislation Will Eliminate Compulsory Arbitration in Sexual Assault and Harassment Cases

Read H.R. 4445 here. 

Background

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “Act”) amends the Federal Arbitration Act (“FAA”), which previously required that mandatory arbitration clauses be enforced in many settings, including employment and independent contractor claims.[2]  The Act will become Chapter Four of the FAA, and, in relevant part, will provide that “[n]otwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.” [3]

Significantly, the Act also mandates that disputes regarding whether the Act applies to a lawsuit must be determined under Federal law, and must be determined by a court, rather than an arbitrator, “irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement, and irrespective of whether the agreement purports to delegate such determinations to an arbitrator.” [4]

A piece of legislation similar to the Act, “An Act Relative to Defense Against Abusive Waivers,” (Bill H. 1984), is currently before the Massachusetts Legislature. That law would make unenforceable any “provision in a contract waiving a substantive or procedural right or remedy relating to a claim of discrimination, nonpayment of wages or benefits, retaliation, harassment, or violation of public policy in employment,” amongst other things, and can be read here.

Analysis

The new federal Act will provide many employees something previously unavailable to them: a day in court, and a jury of their peers. Court systems nationally will likely see an increase in cases alleging sexual assault or sexual harassment, as plaintiffs seek to avoid forced arbitration in hopes of larger or more public verdicts. The Act will likely also impact other contracts with mandatory arbitration clauses, including independent contractor agreements. 

The Act will likely have secondary impacts on state laws which have sought to regulate mandatory arbitration provisions as well. Prior to enactment of the Act, the enforceability of forced arbitration clauses in suits alleging sexual assault and harassment, particularly in the employment context, was in flux. States like California and New York have sought to ban mandatory arbitration clauses in this (and other) contexts,[5] but these laws have been challenged (in some cases, successfully) as being preempted by the FAA. In California, for instance, AB 51 has been subject to significant litigation regarding whether it is preempted (in whole or in part) by the FAA.[6]  The passage into law of HR 4445 may have a significant impact on such preemption challenges, as the newly amended FAA would seem to support, rather than preempt, such state action.

The Act is forward looking, meaning it will only apply to disputes or claims that arise or accrue on or after the date of enactment. Importantly, however, the Act appears to apply to scenarios in which the contract at issue is signed prior to enactment, but the dispute arises or accrues after enactment.

[1] On February 1, 2022, the Executive Office of the President issued a statement of Administration Policy strongly supporting H.R. 4445. That statement can be found here.

[2] See 9 U.S.C. § 2 (“Validity, irrevocability, and enforcement of agreements to arbitrate”); CellInfo LLC v. American Tower Corp., 506 F.Supp.3d 61, 63 (D. Mass. 2020). For more on mandatory arbitration clauses in the sexual harassment context, see Alyssa Schaefer, Note, Sexual Harassment in the Shadow of Mandatory Arbitration, 34 Wis. J. L. Gender & Soc’y 237, 239 (2019) (“Employers currently wield the ability to require arbitration of sexual harassment and other statutory rights claims”).

[3] Following the signature of the president, this language will become 9 U.S.C. § 402(a).  

[4] Following the signature of the president, this language will appear in 9 U.S.C. § 402(b).

[5] California passed AB 51, which sought to bar mandatory employment arbitration, in 2019. Similarly, in 2018, New York enacted Section 7515 of the New York Civil Practice Law and Rules, which invalidated pre-dispute arbitration clauses requiring mandatory arbitration of “any allegation or claim of discrimination, in violation of laws prohibiting discrimination …”

[6] See, e.g., Chamber of Commerce of the United States of America v. Bonta, No. 20-15291 (9th Cir. September 16, 2021) (partially upholding AB 51 in 2-1 decision). New York’s statute, CPLR § 7515, explicitly limits its scope by specifying that the law applies “except where inconsistent with federal law.” See e.g., CPLR § 7515(4)(b)(i).