Employment Arbitration Update: President Biden Signs Legislation Limiting Arbitration Provisions Relating to Sexual Assault and Harassment Claims

Downey Brand LLP

On March 3, 2022, President Biden signed into law the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” (“the Act”) with bipartisan support. The Act is a piece of landmark legislation and the culmination of years of effort by the “Me Too” movement.

The Act bans all “Predispute” Arbitration Agreements and “Joint-Action Waiver[s]” which “relate[] to the sexual assault dispute or the sexual harassment dispute,” and which have “not yet arisen at the time of the making of the agreement.” The Act does not impact employment-related arbitration provisions not involving sexual assault and/or harassment claims. Both “sexual assault dispute” and “sexual harassment dispute” are defined broadly to include any definition under “Federal, Tribal, or State law.” The ban further applies to any case filed “under Federal, Tribal, or State law.” Any dispute regarding the arbitrability of a provision “shall be determined by a court,” not an arbitrator.

The Act is retroactive in most situations. The Act applies to “any dispute or claim that arises or accrues on or after the date of enactment.” Almost certainly, the Act would not apply to pending claims relating to the enforceability of arbitration provisions, as those disputes would have arisen or accrued before enactment. However, if an employee signed an arbitration provision years ago, before enactment, the Act would apply to sexual harassment and/or assault claims that arise or accrue after enactment.

For California employers, the Act comes in the wake of continued litigation and uncertainty regarding mandatory arbitration agreements with employees. In 2019, California passed AB 51, which banned all mandatory employment arbitration provisions. Two days before it was set to take effect, a federal district court enjoined enforcement of AB 51. That decision was appealed to the Ninth Circuit Court of Appeals. In September 2021, the Ninth Circuit ruled that courts must enforce mandatory employment arbitration provisions signed by both parties, despite AB 51’s ban. Under the decision, employers may still violate the California Labor Code by conditioning employment on agreement to an arbitration provision, such as by firing an employee who chooses not to sign one. The United States Chamber of Commerce is seeking rehearing en banc with the Ninth Circuit. While the Ninth Circuit decides whether to grant rehearing, enforcement of AB 51 remains stayed and employers are not prohibited from requiring arbitration provisions as a condition of employment. Should the Ninth Circuit decline rehearing, its prior decision will become effective immediately, and will call mandatory employment arbitration provisions into question.

This month, the United States Supreme Court will hear arguments regarding the enforceability of bilateral arbitration agreements relating to PAGA claims in Viking River Cruises v. Moriana. Should the Supreme Court conclude that such agreements are enforceable with respect to PAGA claims, well-crafted agreements may prevent employees from bringing costly representative PAGA actions against their employers on behalf of other employees. This decision would therefore provide California employers with much-needed relief from the onslaught of PAGA claims.

Based on President Biden’s signing of the Act and continued uncertainty regarding arbitration agreements in California, all employers should carefully review their existing arbitration agreements with employees. Given the Act’s potentially broad application, agreements should be carefully tailored by legal counsel to avoid waiving arbitration of class, collective and/or PAGA claims.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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