Ending Mandatory Arbitrations in Sexual Assault and Harassment Lawsuits

On March 3, 2022, President Biden signed The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” into law.  That Act adds Chapter 4 to the Federal Arbitration Act providing in relevant part:

“[A]t the election of the person alleging conduct constituting a sexual harassment dispute or a sexual assault dispute. . . no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which was under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.”

9 U.S.C. § 402(a).

In essence, this new law prohibits mandatory arbitration in sexual assault and harassment lawsuits. It is succinct and raises many procedural questions for the lawyers representing both employees and management litigating sexual harassment and sexual assault claims. 

What will Change?

We are hoping and expecting that we will have a number of federal court decisions in the coming year that will enable us to have an interesting discussion both about how courts are grappling with the questions posed by the law and what those decisions mean in practice for employment lawyers.  Some of the interesting questions posed by this law are:

  • If some of a plaintiff’s claims are subject to mandatory arbitration but some of the claims are not bound to arbitration under the Act, how will that affect the way a plaintiff’s lawyer will plead the claims?Will the employer’s lawyer wish to litigate in multiple fora?
    • Under the Supreme Court’s decision in KPMG LLLP v. Cocchi 565 U.S. 18 (2011), where a dispute includes multiple claims, some of which are arbitrable and some that are not, those claims subject to arbitration must be sent to arbitration, even if doing so requires the parties to litigate in multiple fora.Thus, it seems likely that under the Act, Plaintiff attorneys will have two choices: (1) include all the claims and either agree to arbitrate all claims or litigate in multiple for a; or (2) plead only the non-arbitrable claims and forego any unrelated claims.  Neither is ideal.
  • How will courts handle “hybrid” claims involving gender discrimination (arbitrable) and sexual harassment (subject to the new law), or claims of racial and sexual harassment. The Act provides that mandatory arbitration clauses are not valid or enforceable for claims that “relate[] to the sexual assault dispute or the sexual harassment dispute.” 
    • We have many other examples in case law regarding what the term “relate to” means, but it is not clear how a court will interpret that clause in this context.  For example, what if an employee claims sexual and racial harassment wherein the offender used terms that related both to her sex and race?  Or an employee is sexually harassed, but also suffers discrimination in the form of disciplinary actions, termination, lower pay, etc.?
  • Arbitration over covered claims is still permissible as long as the claimant consents after the time the dispute arises, but what if the claimant consents and during arbitration revokes that consent?
    • While revocation will likely be an option in situations involving fraud, duress, or other misconduct (as determined by state law), it seems unlikely that a plaintiff could revoke an agreement to arbitrate signed after the dispute arises without such grounds.  However, there is likely to be debate over the meaning of the timing of when a dispute arises.  For example, does the dispute arise when an employee complains to their employer but before they allege a legal claim?
  • If an arbitration agreement improperly covers claims of sexual harassment, does it invalidate the entire agreement?
    • The answer is very unclear.  Courts generally look to state law to determine whether a severability clause in an arbitration agreement is enforceable.  Therefore, the outcome of whether arbitration of sexual harassment claims could be severed and the remaining arbitration provisions enforced may vary greatly by state.
  • Does the new law apply to jury waivers?
    • Likely not.  A jury waiver is a contractual agreement that waives the right to a jury for one or both parties. The FAA does not apply to jury waivers, generally, and thus it seems unlikely courts will extend this Act to cover waivers of jury trials.
  • What happens if an arbitration clause is signed mid-harassment or some illegal acts take place prior and some take place after?
    • As noted before, it is unclear how a court will interpret when an arbitration contract must be signed to be enforceable in this situation.  However, plaintiffs will surely argue that any agreement to arbitrate signed before a legal claim is clearly stated is unenforceable.  Moreover, because sexual harassment is generally considered continuous, plaintiffs will also have a good argument that any agreement signed in the midst of such harassment is unenforceable.

How Does This Affect Arbitration in South Carolina?

It is important to note that this end to forced arbitration in sexual harassment and sexual assault cases applies only where the arbitration agreement is analyzed under the FAA.  Generally, the FAA applies if the contract is in writing and involves maritime or interstate transactions (other than transportation employee contracts).  9 U.S.C. § 2.  In employment matters, this requirement is generally satisfied where the employer is involved in interstate commerce provided the employee’s job is not substantially related to transportation of goods or persons across state lines.  Therefore, for some categories of employees, the FAA will not apply.  South Carolina’s Uniform Arbitration Act (SCUAA) may apply in some contexts, but only where the arbitration specifically provides that the chapter will apply.  S.C. Code 15-48-10.  Thus, where SCUAA applies, there is a real danger that South Carolina courts will enforce arbitration agreements as to sexual harassment and sexual assault claims.

We look forward to seeing how courts interpret the law on these and other questions and are hopeful of the positive impact the Act will have for plaintiffs who have experienced sexual harassment or sexual dispute. If you have any questions, please contact us at our South Carolina employment law firm.

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