Congress Passes Amendments to the Federal Arbitration Act

Update Applicable to:
All employers in the United State of America

What happened?
On February 10, 2022, the Senate passed H.R. 4445, an amendment to the Federal Arbitration Act (FAA) otherwise known as the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.”

What are the details?
Once it is signed into law by President Biden, employers will be prohibited from including mandatory arbitration clauses in pre-dispute arbitration agreements (i.e., contracts, employee handbooks, or offer letters) that apply to claims of sexual harassment or assault. The proposed bill also bars the inclusion of any provisions waiving an employee’s right to bring sexual harassment or assault claims jointly and/or on a class basis.

Key Takeaways:

1. The proposed bill applies to claims that arise after it is signed into law. Although the language of the proposed bill is somewhat unclear, the proposed bill goes into effect immediately upon enactment and appears to apply to any claims or disputes of sexual harassment or assault that arise after the bill goes into law. As such, even if an employer entered into a mandatory arbitration agreement with an employee before this bill becomes law, it is unlikely that any claims or disputes relating to sexual harassment or assault that arise after the bill is signed into law will be subject to arbitration.
2. Employees may still elect to arbitrate sexual harassment and assault claims. Critically, the proposed law provides employees the option to arbitrate such claims if they so desire.
3. Revisions to arbitration agreements may be necessary. Employers should review any agreements containing arbitration clauses or class action waivers to determine whether the bill, if signed into law, will render such agreements and/or class action waivers unenforceable. Any provisions requiring employees to waive their rights to bring sexual harassment or assault claims may run afoul of the bill.
4. The proposed law may allow employees to avoid arbitration. As drafted, the proposed bill may create an avenue to avoid arbitration entirely by asserting sexual harassment or assault claims. Although it is not clear whether non-harassment or assault claims included in a lawsuit that also allege sexual harassment or assault would be tried in court or subject to arbitration, there is some concern that plaintiffs’ counsel may include such claims to avoid arbitration and facilitate having an entire dispute heard before a court. These issues will have to be resolved through litigation.
5. Courts, not arbitrators, will decide challenges. A court, applying federal law, will decide challenges to the validity or enforceability of arbitration agreements covered by H.R. 4445.
6. The proposed law applies beyond the workplace. While proponents of the bill have been focused on perceived workplace inequity, the bill is not limited to “workplace” sexual harassment and assault. The language affords the same protections to any individual who may be a victim of sexual harassment and assault in non-workplace settings where a mandatory arbitration clause applies.

What do employers need to do?

Employers should review the links provided above and should reconsider their arbitration programs and the purposes behind those programs to ensure that their arbitration policies continue to further the company’s objectives and comply with existing law.

VensureHR will continue to monitor this and send out communications once more news has been received.

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