On March 3, 2022, President Biden signed the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” (the “Act”) into law.[1] At its essence, the Act amends the Federal Arbitration Act (the “FAA”) to provide that any predispute arbitration agreement or predispute joint-action waiver in a sexual assault dispute or a sexual harassment dispute filed under federal, tribal or state law is invalid and unenforceable. The person alleging the sexual assault or sexual harassment, or the named representative in a class action, may make this election. While that person may voluntarily choose to proceed with arbitration or proceed as an individual separate from a class or collective action, the law now prevents them from being compelled to do so and renders predispute agreements to that effect unenforceable.

A “predispute arbitration agreement” is any agreement to arbitrate a dispute that has not yet arisen at the time the agreement is made. It doesn’t matter whether the underlying agreement was voluntary, or whether it was a stand-alone agreement or a provision in another agreement – only whether it was entered into before the dispute had arisen. A “predispute joint-action waiver,” also known as a class action waiver, applies to joint, class or collective actions in a judicial, arbitration, administrative, or other forum.

The Act applies to any dispute or claim that arises on or after March 3, 2022.

The Act defines a “sexual assault dispute” as one involving a nonconsensual sexual act or sexual contact, including when the victim lacks capacity to consent. A “sexual harassment dispute” is broadly defined as one relating to conduct alleged to constitute sexual harassment under applicable federal, tribal, or state law.

Determinations as to whether this law will apply to void a predispute agreement in any particular dispute will be subject to federal law, and will be decided by a court rather than an arbitrator, regardless of whether the agreement itself delegates that determination to an arbitrator.

This change in federal law comes in the wake of the #MeToo movement and the push toward exempting sexual assault and sexual harassment claims from confidentiality and dispute resolution restraints that have served as barriers to victims having their day in court.

In California, arbitration agreements in the employment setting are regularly targeted by the state legislature. Assembly Bill 51 (Ch. 711; 2019), originally scheduled to take effect on January 1, 2020, would prohibit employers from requiring an applicant or employee to enter into an arbitration agreement as a condition of employment or continued employment. Violations would result in significant penalties to the employer and possible criminal liability. AB 51 was promptly challenged for violating the FAA and enforcement is currently enjoined while it is under review in the Ninth Circuit Court of Appeals. In light of this, employers in California are cautioned to consult with legal counsel before attempting to implement or enforce mandatory arbitration provisions. A more conservative approach is to ensure applicants and employees are clearly informed that any arbitration agreement is voluntary and that refusing to agree will not result in any adverse employment action. Regardless of whether such agreements are entered into voluntarily, however, the new federal law will now apply to prohibit enforcement of such predispute arbitration agreements in cases of sexual assault or sexual harassment. Agreement language should be modified to recognize this exclusion.

Employers should keep in mind a related California law designed to protect sexual assault and sexual harassment victims. Senate Bill 820 (Ch. 953; 2018) prohibits a settlement agreement from including a provision that prevents or restricts the disclosure of factual information pertaining to a claim filed in a civil action or administrative proceeding regarding specific acts of (among other things):

• Sexual assault;
• Sexual harassment;
• Workplace harassment or discrimination based on sex;
• Failure to prevent an act of workplace harassment or discrimination; or
• Retaliation against a person for reporting or opposing harassment or discrimination.
  
  

SB 820 declared any such agreements entered into on or after January 1, 2019 void as a matter of law and against public policy.

For employers, the most effective course of action remains to take preventative measures to minimize the risk of sexual assault and sexual harassment claims in the first place. This includes keeping current with state mandated sexual harassment prevention training, ensuring that staff are trained to recognize and promptly report incidents of sexual assault and sexual harassment, and that complaints are promptly, objectively, and thoroughly investigated, and corrective action taken as appropriate. It's about creating a safe and professional workplace culture. Credit unions are encouraged to work with legal counsel when concerns arise and to ensure that arbitration and settlement agreements are compliant with the latest legal developments.

Article by Tom Wolfe, Managing Partner of Moore Brewer Wolfe Jones Tyler & North.

[1] “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” Public Law No: 117-90 (03/03/2022), codified at 9 U.S. Code §§401-402.

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