#MeToo arbitration bill heads to President Biden’s desk for signature

Last week, Congress voted to end employers' ability to require employees to arbitrate claims for sexual harassment or sexual assault through predispute arbitration agreements. On February 10, the Senate passed a bipartisan bill known as the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. Three days earlier, the House passed a similar bill by a 335-97 vote.

The new law, if enacted, will allow individuals who allege claims of sexual assault or sexual harassment to bring those claims in court on an individual or class basis even if the individual previously signed a predispute arbitration agreement, requiring that such claims be brought in arbitration on an individual basis.

The legislation now awaits the signature of President Joe Biden, who has previously expressed support and is expected to sign the bill into law.

Arbitration Agreements and #MeToo

Under the Federal Arbitration Act, agreements to arbitrate are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Any state law that is more hostile to arbitration agreements than to contracts generally is invalid and preempted by the FAA.

In 2001, the U.S. Supreme Court confirmed that the FAA applies to employment arbitration agreements, with minor exceptions. Circuit City Stores, Inc. v. Adams, 532 U.S. 105. Applying this holding, lower courts regularly have upheld agreements to arbitrate claims arising out of the employment relationship. The upshot is that employers may require employees to sign otherwise-valid predispute agreements that mandate arbitration of all employment claims as a condition of employment. In most cases, the FAA preempts state laws that attempt to interfere with these rights of parties to arbitrate disputes.

In 2017, when #MeToo went viral, employers increasingly were called upon to end mandatory arbitration of sexual harassment claims. While some companies publicly announced that they would no longer require arbitration of such claims, many more remained silent. A handful of states, including New York and Vermont, passed legislation seeking to prohibit employers from requiring employees to sign agreements to arbitrate sexual harassment claims as a condition of employment. Those laws had little impact because they were preempted in most cases by the FAA, which permits predispute agreements to arbitrate sexual harassment claims. See, e.g., Latif v. Morgan Stanley & Co., 18cv11528 (S.D.N.Y. June 26, 2019) (FAA preempts New York law attempting to ban mandatory arbitration of sexual harassment claims).

The New Law

Although largely unsuccessful at ending mandatory arbitration on their own, the #MeToo movement and these state laws helped spur momentum and bipartisan support for the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. The act will amend the FAA and remove the primary obstacle faced by state laws that attempt to prohibit mandatory arbitration of sexual harassment and sexual assault claims.

Under the new law, an individual bringing a claim for sexual harassment or assault may elect to invalidate a predispute arbitration agreement that requires arbitration of those claims. It also allows a collective action representative to invalidate a predispute joint-action waiver to bring claims of sexual harassment or sexual assault on a class action basis.

The new bill, however, does allow arbitration of sexual harassment and sexual assault claims if the employee chooses to proceed with arbitration. Once signed, the law will apply to "any dispute or claim that arises or accrues on or after the date of enactment" of the act.

Questions Remain About the New Law

When will the proposed law apply? The law does not define when a dispute or claim "arises or accrues," leaving open whether that means the law applies to claims where the underlying events occurred after enactment of the new law or whether it applies to any claim filed after enactment of the new law. Either way, this is an issue the law reserves solely for the courts to decide, expressly stating that the law's application may not be decided by an arbitrator even if the parties' agreement delegates such authority to the arbitrator.

How should the act be applied in cases that assert both sexual harassment and other types of claims? The law is aimed at prohibiting mandatory arbitration of sexual harassment and sexual assault claims. But in a lawsuit, those claims often are combined with other types of harassment, discrimination and retaliation claims, as well as traditional tort claims. Such a scenario could lead to bifurcation of claims, in which the sexual harassment and sexual assault claims proceed in court while other claims proceed in arbitration. It also remains to be seen whether the court action will be stayed pending the outcome of the arbitration, which often happens in cases split across the two forums. Such an outcome would lead to delay in adjudicating sexual harassment claims.

Are retaliation claims arising from the same set of facts covered by the new bill? The original bill included "retaliation for rejecting unwanted sexual attention" in the definition of "sexual harassment dispute," but the version passed by the Senate omitted this language. Instead, the bill defines a "sexual harassment dispute" as "a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law." Given this intentional omission of retaliation from the definition of "sexual harassment dispute," employers will have a strong argument that retaliation claims are not covered and remain subject to binding predispute arbitration agreements.

Conclusion

If President Biden signs the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act into law, the landscape for sexual harassment and assault claims will change. Employee-plaintiffs will have the right to decide whether to pursue claims in court or in arbitration, regardless whether they previously agreed to arbitration. Those employees also will be able to elect to bring such claims individually or as a class. The likely outcome is that more claims will be litigated publicly in court.

If the law is signed as excepted, employers will want to review existing arbitration agreements to assess whether any changes should be made in light of the new law. Even more importantly, employers should review their harassment prevention programs to take steps to prevent sexual harassment lawsuits from arising in the first place. 