Congress Passes Ban on Pre-Dispute Arbitration Clauses Covering Sexual Assault and Harassment Disputes

The Bill entitled, “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act or 2021” will have sweeping effects across multiple industries and may increase already swelling trial court case loads, if nothing more than adding new matters to challenge pre-existing offending clauses. Importantly, despite the name of the Bill, it is not limited to employment contracts, but rather extends to any dispute based in sexual abuse or harassment no matter the type of contract. The new law will be added under Title 9 of the U.S. Code as Chapter 4.

The Bill bans, or otherwise makes “voidable” contract clauses entered before a sexual assault or harassment dispute has arisen that would:

• Require the parties to arbitrate that dispute.
• Waive or prohibit a party from participating in a joint, class, or collective action in any forum, including a judicial, arbitral, administrative or other forum.

What does this mean for employers who may have in the past used or desire to continue using arbitration clauses as their standard practice?

• Retroactive Application. The Bill will apply retroactively, but how far is yet to be known. Initially, it is clear that the Bill is intended to reach any existing contractual clause requiring arbitration for sexual abuse and harassment disputes. It remains untested whether the ban can be used for pending legal actions already commenced before an arbitration proceeding. There are no time restrictions on when a challenge may be initiated to a clause in violation of the Bill, however, waiver rules should also come into play. The Bill does not define what a “dispute” means, or that it is intended to mean a claim or merely an allegation.
• Future Use of Arbitration in Existing Contracts. The Bill does not completely preclude the use of arbitration for sexual abuse or harassment disputes. It is limited to circumstances where a party attempts to enforce and compel arbitration against the complainant. The complainant may still consent to arbitration in writing; however, the consent must be after a dispute within a filed case arises. It is predictable that waiver or estoppel arguments may be raised against a complainant seeking to belatedly avoid such arbitration clauses depending on the factual circumstances.
• Future Use of Arbitration and Class Action Waiver Clauses. Employers may desire to re-assess the use of arbitration and carve-out sexual abuse or harassment clauses in future contracts. For now, the continued use of such clauses is not unlawful or completely precluded. Rather, they are “voidable”. Thus, a claimant may still consent to the use of arbitration, or seek to void the clause and thereby not be subject to its enforcement. Parties, including complainants, may also mutually consent to arbitration even without a pre-existing contractual agreement requiring arbitration.
• Scope of Ban. The Bill expressly covers “a case which is filed under Federal, Tribal, or State law”. Thus, it applies to any dispute relating to sexual abuse or harassment where the complainant is subject to a written arbitration clause. This means it is not limited to employment contracts, but may include any variety of contracts such as rental or lease agreements, long-term or acute care contracts, or club, sport or recreational event contracts and waivers. The ban is restricted to “sexual abuse or harassment” disputes or joint, collective or class action waivers. All other disputes may still be subject to arbitration clauses, as otherwise presently legally permitted.The Bill is also intended to put an end to contractually limiting a person from bringing a joint, collective or class action. Before the Bill existed, an employer was permitted and could successfully enforce limiting an employee from commencing an action that would include similarly situated members or putative members as part of the individual’s lawsuit. Now, such waivers are not “valid or enforceable” with respect to sexual assault or harassment disputes.
• A Court Decides if the Ban Applies Using Federal Law. The Bill provides that challenges to the enforceability of an arbitration clause shall be exclusively determined by a court. This is regardless of the presence of an oft-used clause that an arbitrator decides arbitrability. Moreover, the Bill requires a court to decide the issue of arbitrability irrespective of whether the challenging party is resisting only the arbitration clause specifically, or in conjunction with other terms of the contract containing such agreement.Also, Federal law will control enforcement of the requirements under the Bill to a particular situation. It is not resolved if Congress intended the Bill to preempt all laws, including state law and in particular contracts falling under state arbitration laws only, or if it was intended to apply only to disputes covered by the Federal Arbitration Act.

• What constitutes Sexual Assault or Harassment. The Bill provides specific definitions for sexual assault or harassment.Sexual Assault is “a dispute involving a nonconsensual sexual act or sexual contact, as such terms are defined in section 2246 of title 18 or similar applicable Tribal or State law, including when the victim lacks capacity to consent.”

  Sexual Harassment is defined as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal or State law.” Consequently, the boundaries and limits of both defined acts cover a wide range of possible laws, conduct and interpretation.

• Practical Considerations. Employers, and others possibly subject to this new law will have to consider the continued future use of arbitration clauses to cover the precluded disputes. Further, procedural issues will certainly develop where the clauses remain in contracts. For example, if an employee files a lawsuit, does that eliminate the ability for an employer to seek to compel arbitration while it awaits a determination from the employee to consent to arbitration? What happens to the claims that are brought as part of the action but do not involve sexual assault or harassment? For instance, there can be tortious interference or discrimination claims that are not precluded. When an employer has a counterclaim to a lawsuit for sexual harassment brought by a claimant who is otherwise subject to an arbitration clause will that then result in two matters proceeding concurrently and resolved by two different triers of fact, and in two different forums?Despite the limitations imposed by the Bill, the parties may still consent to use arbitration after a dispute arises. This then allows the possibility of keeping such clauses within contracts, such as employment agreements, to allow the parties to re-visit the availability of arbitration after the dispute arises. It also gives an employer the opportunity to offer to pay the cost of arbitration as a bargaining tool to obtain the claimant’s consent to arbitration.

  The Bill also does not address other forms of alternative dispute resolution, like the use of private trials or mediation, being part of a contractual agreement.

  Another practical effect of this Bill, and the continued use of arbitration clauses, is to allow for a claimant to protect their privacy and own interests. In many cases, an individual may have personal reasons for not airing his or her sensitive and personal information, but would rather desire to keep it private. Allowing a complainant the choice to elect a private arbitration forum or a publicly filed case provides for the flexibility of individual choice.

  To avoid non-sexual assault or harassment claims swallowing up other types of claims not covered by the Bill, the party offering the contract might also consider the use of separate and independent contracts.

  In the end, employers and those with arbitration clauses in their contracts will have to remain vigilant to protect their rights and weigh varying and new factors like the cost of having two proceedings and the risk of inconsistent outcomes of two proceedings. There are many issues raised by this new Bill that require planning and preparation with proper legal guidance.

For more information on arbitration or employment related matters and its impact on your business, contact Kris Kazmierczak. Kris Kazmierczak is a shareholder of Katz Korin Cunningham, PC, where he focuses his practice in the areas of business, contract and employment counseling and litigation.

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