Practical Considerations for Navigating the Upcoming Federal Ban on Predispute Arbitration and Class Action Waivers of Sexual Harassment and Assault Claims

On Thursday, February 10, 2022, the United States Senate passed H.R. 4445, which will amend the Federal Arbitration Act (FAA) to ban all pre-dispute arbitration agreements and class and collective action waivers covering sexual harassment and sexual assault claims. President Biden has already announced that he will sign the bill into law once it reaches his desk.

H.R. 4445’s Requirements

Once signed into law, H.R. 4445 will amend the FAA to prohibit employers from enforcing predispute arbitration agreements and waivers of class and collective actions relating to claims of sexual harassment and sexual assault. H.R. 4445 contains the following key definitions:

• A “sexual assault dispute” is “a dispute involving a nonconsensual sexual act or sexual contact . . . including when the victim lacks capacity to consent.”
• A “sexual harassment dispute” is “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.”
• A “predispute arbitration agreement” is “any agreement to arbitrate a dispute that had not yet arisen at the time of the making of the agreement.”
• A “predispute joint waiver” is “an agreement, whether or not part of a predispute arbitration agreement, that would prohibit, or waive the right of, one of the parties to the agreement to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum, concerning a dispute that has not yet arisen at the time of the making of the agreement.”

H.R. 4445 will only apply to claims that arise or accrue on or after the date H.R. 4445 is enacted. It will not retroactively apply to existing claims of sexual harassment and sexual assault. Arbitration agreements or class and collective waivers covered by H.R. 4445 will be invalid or unenforceable as to claims of sexual assault or harassment. H.R. 4445 also mandates that any dispute over its provisions will be determined under federal law and by a court rather than an arbitrator, regardless of language in an arbitration agreement electing otherwise.

Implications

H.R. 4445 comes on the heels of numerous states passing similar legislation over the last several years, largely in response to the #MeToo movement. Some of those laws not only ban or limit the use of arbitration for sexual harassment and assault claims for employees, but also prohibit use of arbitration agreements for discrimination, hostile work environment, and other claims.[1] Although there is an existing federal law banning the use of predispute arbitration agreements for sexual harassment and assault claims for companies holding federal contracts with the Department of Defense,[2] H.R. 4445 will be the first federal law to ban such agreements for all U.S. employers.

Over the last several years, the U.S. Supreme Court has generally found that the FAA preempts attempts to curb the enforceability of arbitration agreements, given the strong presumption under the FAA in favor of arbitration. Through the passage of H.R. 4445, Congress has now expressly limited the scope of the FAA, at least relating to sexual harassment and assault claims. And the Biden administration has indicated that it supports expanding limitations to preclude predispute arbitration agreements for claims regarding “discrimination on the basis of race, wage theft, and unfair labor practices.”[3] It remains to be seen whether H.R. 4445 will be a harbinger of other federal legislation that will further chip away at the enforceability of arbitration agreements.

Practical Takeaways

Although H.R. 4445 will bar employers from using predispute arbitration agreements covered by the FAA to mandate arbitration of sexual harassment and assault claims or use class or collective action waivers for such claims, there are a few notable limitations to H.R. 4445:

• Employers operating solely within an individual state might be able to have arbitration agreements that would not be covered by the FAA, since the FAA generally applies only to agreements in interstate commerce.
• Employees may voluntarily elect to arbitrate claims after a dispute has arisen.
• Sexual harassment and assault claims that arise or accrue before H.R. 4445 becomes law, including claims currently being disputed or litigated, will not be covered.
• H.R. 4445 does not preclude predispute arbitration agreements or class or collective action waivers of other claims, including discrimination, retaliation, and wage-and-hour claims.

For now, employers should consider whether they need to revise or overhaul their employment agreements that contain predispute arbitration or class action waivers covered by H.R. 4445. The limitations in H.R. 4445 will presumably apply to all agreements with predispute arbitration and class action waivers, including employment agreements and separation agreements. In reviewing their agreements, employers should consider whether existing provisions that already carve out claims that cannot be arbitrated or waived under federal law may be sufficient for compliance with H.R. 4445. Given the trend of state and local laws banning arbitration of sexual harassment and assault claims, employers should also consider whether to include specific carve-outs for those claims.

Keep in mind that H.R. 4445 only invalidates enforcement of any arbitration or class action waivers covering sexual harassment and assault claims. It does not provide plaintiffs with rights to recover damages or attorneys’ fees if they are subject to provisions that violate H.R. 4445.

Employers should also consider the impact of H.R. 4445 on their litigation strategies and budgets. There may be an uptick in the number of court filings of sexual harassment and assault claims. Where plaintiffs pursuing such claims have other employment claims, such as discrimination, hostile work environment, or retaliation claims, that are covered by arbitration agreements or class or collective action waivers, it might result in the employer defending claims against the same employee in two forums.

[1] See, e.g., New York Civil Practice Law and Rules, Section 7515; Maryland Senate Bill 1010 (Disclosing Sexual Harassment in the Workplace Act of 2018); New Jersey Senate Bill 121 (amending New Jersey Law Against Discrimination).

[2] H.R. 3326, Department of Defense Appropriations Act, 2010.

[3] “Statement of Administration Policy,” Executive Office of the President, https://www.whitehouse.gov/wp-content/uploads/2022/02/HR-4445-SAP.pdf.