Given the flood of public sexual harassment accusations in recent months, a bipartisan coalition of lawmakers and celebrities have come together to introduce legislation that would eliminate forced arbitration clauses in employment agreements, which advocates say reduce negative exposure for businesses and discourage women from speaking out about sexual harassment and gender discrimination claims. If enacted, the “Ending Forced Arbitration of Sexual Harassment Act” would prevent businesses from enforcing mandatory arbitration agreements with regard to complaints of sexual harassment and gender discrimination by their employees. As a result, employees would gain the option to litigate such claims, instead of arbitration being their only means of dispute resolution.
Since the Supreme Court’s monumental decision in 1991 upholding the enforceability of mandatory arbitration clauses in employment contracts, arbitration has increasingly become a preferred method of dispute resolution for many employers who view it as faster and more cost effective than litigation. The Economic Policy Institute estimates that approximately 60 million American workers are currently bound by arbitration provisions contained in their employment agreements—56% of which are subject to mandatory arbitration. However, mounting allegations of sexual misconduct in the workplace and the recent public outcry over mandatory arbitration agreements threaten to prohibit employers’ use of mandatory arbitration to resolve employees’ sexual harassment claims. Such legislation also has the potential to ignite a movement towards ultimately prohibiting the use of mandatory arbitration as a means to resolve employment disputes altogether. The Arbitration Fairness Act of 2017, for example, currently before the House Judiciary Committee, seeks to invalidate mandatory predispute arbitration agreements altogether with regard to employment, consumer, antitrust, and/or civil rights disputes.
What Would This Mean For Employers?
The end of mandatory arbitration for sexual harassment claims may not be as detrimental to employers as some might expect. Litigation has some benefits over arbitration, such as the potential for early relief through summary judgment and other dispositive motions, and broader grounds for appeal. Moreover, recent studies have shown that the costs of arbitration can actually be just as substantial, and the time to resolution just as long, as with litigation. In addition, barring forced arbitration would not preclude employers and employees from entering into confidential settlement agreements at any time before entry of judgment.
Obviously, the best thing that employers can do to avoid any adverse impact from the possible end of mandatory arbitration is to avoid claims in the first place. There are proactive steps employers can take to minimize or even prevent instances of sexual harassment from occurring. Such actions include: enhancing internal sexual harassment policies and strongly enforcing those policies, diligently investigating all complaints of sexual harassment and gender discrimination by employees, and taking effective action to resolve such claims no matter how trivial, strongly enforcing internal disciplinary measures and penalties for offenders, adding morality clauses in executive agreements and strengthening “for cause” termination provisions in all employee contracts to include specific acts of sexual harassment as prohibited misconduct, and mandating regular sexual harassment and anti-discrimination training for all employees.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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