Importance and Results of New Federal Law Banning Forced Arbitration for Harassment

There is a reason why more than half of U.S. companies have adopted individual arbitration and class action waivers to resolve worker complaints as an alternative to litigating in court.  Civil rights groups cite certain studies showing that employees prevail only about a third as often in mandatory arbitration as in federal courts, and the damages awarded are only about 20% of what it is in court cases.  Further, these groups complain that the privacy of such actions limits the deterrent effect of having effective enforcement.  

A new federal law, signed by President Biden on March 3, 2022, called Ending Forced Arbitration of Sexual Assault and Sexual Harassment, prohibits pre-dispute arbitration agreements and class action waivers concerning a sexual harassment dispute or a sexual assault dispute.  It gives prospective plaintiffs, but not defendants, the right to choose whether to litigate their sexual assault of harassment claims in court or through arbitration.  Such individuals may also choose to bring suit individually or as a class action.  The new law applies to any dispute or claim that arises or accrues on or after the date of enactment of the law.  

Questions have already arisen as to what the law means with respect to sexual harassment cases which also include other allegations, such as race discrimination or wage-and-hour claims.  The question is whether under the statute which reads "with respect to a case" means that the entire lawsuit remains in court, or portions considered unrelated to sexual harassment or sexual assault be referred to arbitration, with only the harassment claims remaining in court.  It is likely that more plaintiffs will add claims of sexual harassment or sexual assault in an attempt to avoid having their cases sent to arbitration.

Sens. Lindsey Graham (R. - S.C.) and Joni Ernst (R. - Iowa) put in legislative history supporting a narrower reading of this ambiguous language, as Ernst said the measure "shall not be the catalyst for destroying pre-dispute arbitration agreements in all employment matters."  Senator Graham warned lawyers trying to "gain the system" by mixing sexual harassment and assault claims with other allegations, stating: "So if you've got an hour-and-wage dispute with your employer, with a sexual harassment or sexual assault claim, the hour-and-wage dispute stays under arbitration unless it is related." 

Editor's Note - This new federal law will likely result in more sexual harassment claims being brought, and greater settlement demands on the part of plaintiffs.  Employers also have to decide whether to amend their pre-dispute arbitration and class action waiver agreements with respect to sexual harassment claims.  It would probably be a good idea to do so, although it is unlikely that the failure to make such an amendment would void the other pre-dispute provisions.  In any such amendment, attention should be given to addressing the issue of keeping the non-sex harassment portions in arbitration, as the existence of this provision may encourage a judge to enforce these provisions under the Federal Arbitration Act.

This is part of our April 2022 Newsletter.

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