With the passage of H.R. 4445, Congress has discovered a point of agreement: barring the mandatory imposition of arbitration for employees suffering from sexual assault or sexual harassment in the workplace. President Biden has indicated he is likely to sign the bill as well.
Ending Forced Arbitration of Sexual Assault and Sexual Harassment in the Workplace
The employer’s authority to mandate arbitration of workplace disputes was endorsed by the U.S. Supreme Court more than two decades ago in Circuit City Stores, Inc. v. Adams. With this new bill, Congress has now carved out a limitation. The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Workplace Act of 2021, a five-year effort for the legislative branch, amends the Federal Arbitration Act to prohibit an employer from mandating arbitration of claims for sexual assault or sexual harassment in the workplace for claims that arise after an employee has signed an arbitration agreement. This prohibition is elective – meaning that the employee allegedly victimized by the sexual misconduct may still choose to arbitrate his or her claims. Although the impetus behind the Act was to curtail corporations from using the privacy afforded by arbitration to hide unscrupulous behavior of management, victims may also appreciate resolving their claims outside of an often curious and opinionated public audience.
The Act also erodes employer gains at the U.S. Supreme Court regarding arbitration of workplace disputes. In Epic Systems Corp. v. Lewis and Lamps Plus, Inc. v. Varela, the U.S. Supreme Court ruled that employers could bar class and collective actions through mandatory arbitration agreements. The Act now resurrects the ability of employees to bring disputes involving sexual assault and sexual harassment as class and collective actions. The Act also sidesteps the U.S. Supreme Court decision in Henry Schein, Inc. v. Archer and White Sales, Inc. and designates the court, not the arbitrator, as the decisionmaker as to whether a claim is arbitrable, regardless of whether the agreement indicates it should be the arbitrator. That may lead to even further litigation as the parties argue whether certain conduct is indeed sexual harassment and covered by the Act as opposed to merely vulgar and inappropriate conduct not covered by the Act. Although earlier versions of the Act limited the definition of sexual harassment to contact based harassment and quid pro quo so as to leave the impression that it did not apply necessarily to all hostile workplace harassment, the Act now leaves it as broad as the federal definition will allow. Interestingly, while yet to be seen, the Biden administration has also stated that the bill may be a model for extending restrictions on arbitration agreements in other contexts, including race discrimination, wage claims and others.
How Will H.R. 4445 Affect Employers?
Although some commentators presage the Act as a bane to employers, not all is lost by defending these claims in court. Arbitration has not necessarily proven to be less costly or quicker as was initially touted, and it lacks any adequate appellate review. Employers may still be able to preserve some sense of privacy by early settlements that include confidentiality provisions– albeit they will lose the tax deduction of any settlement payment compliments of the 2017 Tax Cuts & Jobs Act. The bill will apply retroactively, meaning that those locked into forced arbitration clauses right now will also benefit from the provisions of the bill.
Employers should carefully review their employment agreements, or any agreement which may include such mandatory arbitration provisions for sexual harassment or assault claims. Employers may consider rolling out new agreements that carve out sexual harassment and assault from mandatory arbitration (and future agreements should make this clear). Employers may, on the other hand, leave existing agreements as is and issue a policy or statement that makes clear that arbitration will not be mandated for sexual harassment or assault. For further information on how H.R. 4445 may impact your business or for assistance in crafting arbitration or other employment contracts, please contact Rob Gilmore (RSG@kjk.com or 216.736.7240) or any of our attorneys in the KJK Labor & Employment Practice.