Under new law, forced arbitration no longer sexual assault, harassment claims

Beloved by employers, forced arbitration agreements have been less appreciated by workers required to go through the process.

Mandating that potential employees sign away their rights to litigation as a condition of employment seemed like a win-win for companies. It most obviously prevented expensive lawsuits but also allowed businesses to pick the arbitrators who heard cases — and screen out those who wouldn’t agree to such demands.

“It’s a very flexible tool for companies to use,” said Alexander Colvin, dean of Cornell’s School of Industrial and Labor Relations, according to a story from Fast Company’s Pavithra Mohan. “They can use it in all kinds of settings.”

A new restriction on arbitration agreements became law this spring, however. That one-size-fits-all tool has just become a little less convenient. The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 was signed by President Biden on March 3, and the writing is on the wall for employers. 

It’s time to give your arbitration agreements a hard look. Here are five questions and answers about the new law and what it could mean to you.

What does it do?

In short, the law lives up to its extended title, mentioned above. As the National Law Review reports, it makes contracts requiring arbitration claims of sex assault and harrassment “invalid and unenforceable.” An employee who experienced either in the workplace has the right to judicial proceedings.

But that’s not all.

“This new law is more than just giving victims of sexual harassment and assault ‘their day in court,’ writes Tom Spiggle, a senior contributor at Forbes.com “It’s also about forcing companies to put more effort into addressing sexual assault or harassment claims.

“Now that companies know it’s far more likely allegations of sexual misconduct could result in a public lawsuit, they will try harder to prevent it from happening in the first place.”

Why did this even come up?

The short answer is the Me Too movement. As story after story of powerful men preying on their female employees came out, it became harder and harder to make the case that mandatory arbitration served workers’ best interests. Indeed, to most outside observers, the practice looked like businesses were more interested in protecting their bottom lines than establishing a respectful workplace.

Those in the movement have “long believed that court is a better forum for such claims than arbitration,” writes Shira A. Scheindlin for Reuters. “And statistics bear this out. Those bringing these claims are statistically more successful in court and win higher awards.”

What’s the time frame?

The law is partially retroactive, according to Spiggle. That is, existing clauses in contracts forcing arbitration for these kinds of claims have been rendered null and void. Companies will also want to rework arbitration agreements for new employees to ensure they follow current law.

On the other hand, earlier cases that have been settled through the process can’t be reopened. What’s done is done.

Does it affect other claims?

No. Arbitration agreements can still apply to other workplace legal claims, which means a single departure could theoretically spawn multiple proceedings. One would be in a court, about sexual harassment and assault, and the other could be arbitration over an unrelated dispute.

That also means companies would have big decisions to make.

“Under such a scenario, employers would need to decide whether to permit all claims to proceed to court or whether to split the claims between the two forums,” explains the National Law Review article. “In such cases, where parties disagree, courts would need to decide which claims must be litigated and which, if any, may be arbitrated.”

What comes next?

The federal government isn’t done yet.

The ink was scarcely dry on this law when a new bipartisan bill was introduced barring the use of nondisclosure agreements, or NDAs, to prevent employees from speaking up about sexual harassment or abuse. It’s called the “Speak Out Act.”

“This is a preventive piece,” said U.S. Rep. Lois Frankel, a Florida Democrat, in the Washington Post. “When companies that are going to have offenders are aware that they cannot hide illegal sexual harassment, that they cannot put it under the rug, they’re going to take more steps from the get-go to keep it from happening.”

NDAs have become common tools in much the same way as arbitration clauses: They allow businesses and employers to reduce their risk. But their slapdash use may be coming to an end as well.

While some details are yet to be ironed out one thing is certain, employees and employers alike will have to adjust to the changing landscape. If you need help, Berman North’s employment lawyers can help you. Our skilled attorneys can help employers and employees understand their rights and options.