New Federal Law Bans Mandatory Arbitration For Sexual Misconduct Claims

Its biggest impact will be on the 60 million American employees currently subject to forced arbitration provisions, but it also applies to all other businesses and agreements

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Businesses facing sexual misconduct claims made by employees or others have long used mandatory arbitration provisions in employment contracts, terms of service provisions, leases, or other agreements to keep such claims out of the courthouse and out of the public eye. These clauses prevent alleged victims of sexual assault and misconduct from filing lawsuits in state or federal court, instead requiring their claims to be heard in arbitration, usually accompanied by an agreement not to publicly disclose the allegations or the outcome of the arbitration.

But under recently passed federal legislation, any contractual provisions mandating arbitration for sexual assault, harassment, and misconduct claims are no longer valid or enforceable. 

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the Act) is perhaps the most significant legislation to date to emerge from the #MeToo movement. Passing both houses of Congress with rare and large bipartisan support, the Act will soon be signed into law by President Biden. Effective immediately upon the president’s signature, the Act gives individuals a choice between filing a civil lawsuit or voluntarily opting to arbitrate allegations involving sexual harassment or assault.

The new law's biggest impact will be on the 60 million American employees currently subject to forced arbitration provisions, but it also applies to all other businesses and agreements. For example, ride-sharing companies like Uber and Lyft can no longer force passengers to arbitrate claims of sexual assault by drivers or that occur in their vehicles, and landlords cannot do the same for such acts that occur on their property.

All Existing Mandatory Arbitration Provisions for Sexual Misconduct Are Invalid and Unenforceable

The Act provides that "at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute..., no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute."

The Act defines "sexual assault dispute" as one "involving a nonconsensual sexual act or sexual contact" and "sexual harassment dispute" as one "relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law." It will be up to a judge, rather than an arbitrator, to decide whether the Act applies to a given claim and arbitration provision, regardless of whether the agreement purports to delegate such determinations to an arbitrator.

Importantly, the Act’s prohibition on forced arbitration provisions involving sexual misconduct claims applies retroactively. This means that any existing agreements or clauses that purport to require arbitration of such claims will no longer be enforceable. Employers and other businesses that have relied upon these provisions can no longer do so. That said, the Act should not impact mandatory arbitration provisions that apply to other matters that do not involve sexual assault or harassment.

Following The States’ Lead

This nationwide ban on mandatory arbitration of sexual misconduct claims comes in the wake of similar legislation already enacted in several states. Some of these statutes, like those in Maryland and Vermont, mirror the Act in only prohibiting mandatory arbitration of sexual misconduct claims but only apply in the employment context. Other state statutes banning mandatory arbitration in employment contracts, such as those in Illinois, California, and New York, are broader than the federal Fred MendelsohnFred Mendelsohnlegislation in that they apply to any kind of harassment and discrimination claim, not just those involving sexual assault and harassment.

Employers and other companies with mandatory arbitration provisions in their contracts or terms of service should also review those documents and make any needed revisions. Alternatively, companies that decide not to revise their mandatory arbitration agreements should advise employees that they are no longer required to arbitrate sexual assault and sexual harassment claims.


Fred Mendelsohn is a partner at Burke, Warren, MacKay & Serritella in Chicago. If you have questions or concerns about business interruption insurance claims, contact Mendelsohn at 312-840-7004 or fmendelsohn@burkelaw.com.

 

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