Forced Arbitration Clauses No Longer Enforceable

The United States Congress recently amended the Federal Arbitration Act to make it easier for victims of sexual assault and/or harassment to bring suit in Federal Court and put an end to forced arbitration on those claims. H.R. 4445 was signed into law by President Biden on March 3, 2022, ending almost 5 years of pressure to turn this legislation into law. As highlighted during the passage, the amendment gives alleged victims the choice to pursue these disputes in Court regardless of whether they previously signed an arbitration agreement limiting their recourse to private arbitration.

H.R. 4445 amended the Federal Arbitration Act and provides the following options for potential claimants. First, the employee, and not the employer will be able to choose how to litigate their claims whether in Court or private arbitration. The law also allows employees (even if they have signed an arbitration agreement previously) to file suit individually or as a class, through a class-action lawsuit. This right also exists regardless of whether the employee signed an agreement waiving those rights. Secondly, the decision on the question of law as to whether this Amendment would apply to a particular case is to be decided under federal law, and by a federal judge.  Before the passage if H.R. 4445, the parties could have elected for the arbitrability of the claim to be decided by the same private arbitrator who was deciding the claim.

Significantly, this law appears to apply retroactively to undermine agreements that already exist, so long as the claim arises after the law’s passage. Under this amendment, the harassment or claim must have arisen after March 3, 2022, but any forced arbitration clause signed before March 3, 2022, can be voided by the employee. As a result, any existing signed forced arbitration clause is voidable, at the choice of the employee, regardless of the executed prior arbitration clauses. An employee may choose to honor those prior clauses. Importantly, though, any prior cases which have been completed through forced arbitration cannot be reopened. This is a significant change in the world of employment law.

How does this affect you?

Employers who utilize mandatory arbitration agreements with their employees should consider having our employment law team review and update your agreements to help maximize the enforceability of the agreement if challenged. Specifically, employers should consider adding specific language that carves out the new rights with respect to sexual harassment and sexual assault right under the law, while maintaining your company’s right to private resolution for other employment disputes. Further, if you are dealing with a claim that has both sexual harassment and non-sexual harassment component, your company needs to determine the risk assessment of arbitration or proceeding into Court.

Looking down the road, the passage of this legislation also foreshadows another change:  removing forced arbitration clauses for most suspect classes, i.e., race, disability, or other ‘heightened classes.’ That bill, called the “FAIR” Act remains only legislation at this point, but we expect that the FAIR Act will also become law at some point in the near future. At the time of this posting, this legislation had passed the U.S. House of Representatives, and is awaiting U.S. Senate action.

This development is yet another reminder of how important it is that your organization remain vigilant in your efforts to prevent sexual harassment, and to respond appropriately if it occurs, including providing regular sexual harassment training, which is mandated Illinois by the Workplace Transparency Act, and working with your human resources and diversity, equity, and inclusion departments.

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