Alert: National Ban on Mandatory Arbitration for Sexual Assault and Harassment Claims to be Signed into Law

President Biden is expected to sign a bill amending the Federal Arbitration Act by banning pre-dispute employment arbitration agreements for sexual harassment and sexual assault disputes. The proposed law, “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” is the latest in a series of workplace changes initiated by the #MeToo movement.

Sexual assault and harassment claims no longer subject to mandatory arbitration. The amendment prohibits the enforcement of mandatory pre-dispute arbitration agreements, as well as agreements prohibiting participation in a joint, class or collective action in any forum “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.” The Act also provides that any dispute as to whether or not a claim falls within the scope of the Act’s prohibitions will be decided by a court, not an arbitrator, irrespective of the designation set forth in the arbitration agreement. Although the bill bans pre-dispute agreements to arbitrate sexual harassment and sexual assault claims, employees can still voluntarily elect for arbitration after the claim arises. This carve-out was intended to allow victims of sexual assault or sexual harassment to voluntarily avoid going through the often-public process of the court system.

Under the legislation, the term “sexual assault dispute” retains the same definition as used in 18 U.S. Code §2246 as one “involving non-consensual sexual act or sexual conduct.” The term “sexual harassment dispute” is defined as one “relating to conduct that is alleged to constitute sexual harassment.” Sexual harassment is narrowly redefined under the Act to only include the following behaviors: a) unwelcome sexual advances, b) unwanted physical contact that is sexual in nature, including assault, c) unwanted sexual attention, including unwanted sexual comments and propositions for sexual activity, d) conditioning professional, educational, consumer, health care, or long-term care benefits on sexual activity, and e) retaliation for rejecting unwanted sexual attention. Notably, this definition does not include other forms of harassment that are not sexual in nature but may nonetheless constitute gender-based discrimination (e.g., disparate pay between similarly situated male and female employees).

How the amendment will affect other employment claims. These new restrictions will only apply to those disputes or claims arising on or after the date of enactment of the Act. Therefore, any existing claims up to this date would not be affected and may be subject to mandatory arbitration. Moreover, the Act does not prevent employers from moving to arbitrate any other claims asserted by an employee, while leaving the sexual assault or harassment claims in court, potentially leading to “bifurcated” suits with some claims proceeding in the court system and others in arbitration. On the employee side, employers can expect to see sexual assault or harassment claims being included in suits primarily involving other causes of action not covered by the act (e.g., a gender discrimination claim) in an attempt to escape the mandatory arbitration provision. Employees will likely argue that bifurcation is not appropriate because the claims are too intertwined. These determinations will be made on a case-by-case basis.

How the amendment will affect New Jersey employers. In response to the #MeToo movement, the New Jersey Legislature amended the New Jersey Law Against Discrimination in 2019 to prohibit the enforcement of contractual waivers of substantive or procedural rights relating to discrimination, retaliation, or harassment claims. This necessarily included jury trial waivers commonly found in employment agreements. However, these amendments were deemed unenforceable by the courts because they were in conflict with the Federal Arbitration Act which preempts any state law prohibiting or restricting the use of arbitration agreements. Now that sexual harassment and assault claims are no longer subject to the Federal Arbitration Act, the amendments to the New Jersey Law Against Discrimination banning jury waivers will now be applicable to these claims.

Given the likelihood of enactment, employers should carefully review arbitration clauses in existing contracts and consider amending broad arbitration requirements to include a carve-out for sexual harassment and sexual assault claims. We will continue to monitor this proposed bill and notify you of any developments. In the interim, employers should review their anti-harassment and anti-discrimination policies to ensure the proper handling of complaints in an effort to prevent claims before they begin.

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