By: Wendy G. Adkins and Matthew R. Miller
On February 10, 2022, Congress completed action on a significant, bipartisan reform of the Federal Arbitration Act. President Biden has already indicated his support for the bill, referred to as the “’Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” and is expected to sign it into law.
The bill will invalidate agreements to arbitrate sexual assault or sexual harassment claims which are signed before a dispute arises. The bill also invalidates pre-dispute waivers of the right to join a class-action related to sexual harassment or sexual assault. Parties to a dispute, however, may still agree to arbitrate after a dispute arises. Finally, whether this legislation applies to any given agreement must be determined by a court, not by an arbitrator, regardless of the terms of the agreement.
Many employers have entered into agreements with their employees to handle any disputes which arise, often including claims of sexual harassment, through arbitration, meaning this change could impact many employers. This reform will not impact any disputes already in arbitration. But for any dispute over sexual assault or harassment which arises after the law takes effect, any agreement to arbitrate signed before the employee brought the claim will be invalid and the employee will be free to pursue the claim in court if he or she desires. Likewise, regardless of any agreement signed before the claim arose, employees will have the right to pursue sexual assault or harassment claims through joint or class actions.
This recent legislation is consistent with other statutory changes supporting sexual harassment and assault survivors and advocating for the survivors to be able to publicly tell their stories and make their claims. For instance, the 2017 Federal Tax Cuts and Jobs Act amended the tax code to prevent deductions related to sexual harassment settlements if those settlements are confidential. That law also prohibited the deduction of attorney’s fees if they relate to settlements or payments that include non-disclosure agreements.
Likewise, in the #MeToo era, many potential purchasers and investors view sexual harassment claims as a distinct and significant risk. Some purchasers now require a #MeToo representation, or “Weinstein Clause,” in purchase agreements. There is a move toward focusing on more than just financial due diligence, and toward also undertaking social due diligence: examining a company’s culture, anti-harassment policies, trainings, and history of claims.
The #MeToo movement helped generate broad support for this particular bill, but it may also be the start of a trend in arbitration reform. In a statement of support for this bill, the White House expressed its hope that this would be the first step toward “broader legislation” to limit arbitration agreements with regard to such issues as “discrimination on the basis of race, wage theft, and unfair labor practices.” Some states, such as New York and California, are already advancing policies which will limit the scope of arbitration agreements in those areas.
Considering these recent legislative changes and business trends, all businesses should obtain legal review of employment-related arbitration agreements as well as purchase sale agreements with provisions that may apply to sexual harassment or sexual assault claims.