Top 3 Questions You Should be Asking about the New Federal Act Invalidating Mandatory Arbitration and Class Action Waivers of Sexual Harassment and Sexual Assault Disputes

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Vinson & Elkins LLP

President Biden is imminently expected to sign into law the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act” (the “Act”), which will have significant, immediate ramifications for employers who have entered into arbitration agreements with their employees.

In a nutshell, the Act allows a person with a dispute involving sexual assault or sexual harassment allegations to make an election rendering mandatory arbitration clauses invalid or unenforceable with respect to those disputes. In class or collective actions involving sexual assault and sexual harassment disputes, named plaintiffs can similarly seek to invalidate class action waivers on behalf of class members.

A lot has already been written on the Act, but here are the answers to the three of the important questions we’re getting from employers:

  1. Are existing arbitration agreements invalidated?

No, the Act does not invalidate or render void your existing arbitration agreements or programs, or make it unlawful to enter into such agreements. Instead, the Act’s impact is going to be felt at the dispute stage — specifically, when employees seek to invalidate otherwise binding arbitration agreements with respect to covered disputes arising on or after the date the Act is signed into law. What will that look like? We expect that employers will find that more sexual harassment and assault claims are filed in open court as plaintiffs elect to waive an arbitration agreement specifically for the purpose of that dispute.

2. Must existing arbitration agreements or class waivers immediately be amended?

While employers should carefully review their agreements, most employers will not need to make any amendments to existing arbitration agreements or class waivers to comply with the Act. Unlike some other recent federal litigation in the employment space (e.g., the Defend Trade Secrets Act of 2016), the Act does not require the inclusion of any specific notice language.

3. Going forward, should arbitration agreements be revised?

You do need to think about the language used to define the scope of your arbitration agreements and class waivers, as well as ancillary provisions in agreements that include arbitration clauses such as those related to severability. We expect that there will be an increase in litigation about what it means to have a “sexual harassment dispute” or “sexual assault dispute,” and that the language defining the scope of what parties have agreed to arbitrate will come under close scrutiny.

Given the history of litigation surrounding mandatory arbitration agreements and class waivers, we expect that the Act will generate litigation regarding the scope of claims that the Act now excepts from such pre-dispute agreements. Indeed, we would not be surprised to see efforts to shoehorn unrelated sexual harassment claims into disputes in an effort to avoid mandatory arbitration agreements, requiring employers to seek to compel such claims to arbitration and courts to clarify the Act’s coverage.

In sum, it seems likely that the Act will quickly become a repeat player in judicial proceedings across the country. We encourage you to reach out to outside counsel to discuss the impact of the Act on your agreements and arbitration programs.

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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