Viewed as a risk mitigation tool, arbitration clauses are included in employment contracts and policies to route employer/employee disputes to a private forum and outside of the courthouse. Employers are attracted to such clauses because they are believed to be cost-effective and a confidential resolution of claims. As part of the #MeToo movement, however, such clauses are scrutinized, suggesting they tip the playing field in an employer’s favor. Fueled by Fox News’ highly publicized sexual harassment case filed by former anchor Gretchen Carlson, Congress passed a bill on February 10, 2022, that invalidates employer/employee agreements for sexual assault and sexual harassment cases. President Biden is expected to sign the bill into law soon.
What the New Law Says
The soon-to-be-law stops existing clauses whether they are in employee contracts or policies. It won’t affect disputes currently in arbitration but will apply future-forward. Further, the law contains an employee choice provision wherein employees may elect arbitration if they are drawn toward a more private forum, but they may not be forced into arbitration or bound by an agreement.
Some employers, such as those in Iowa, are accustomed to such limitations. Iowa state law already prohibits arbitration in any employment agreement. Iowa employers involved in interstate commerce, however, were historically able to revive arbitration agreements under federal law. In fact, it was often said that federal law favors both arbitration of disputes and the enforcement of arbitration agreements. This is no longer true.
Federal law now rebukes arbitration clauses for sexual assault and sexual harassment. This federal law about-face will have the greatest impact on multistate employers and healthcare providers that had the strongest argument for arbitration under federal law. The arguments are now invalid for claims involving sexual assault and sexual harassment.
Although the bill doesn’t reference other types of employer/employee disputes such as gender discrimination, race, religion, sexual orientation, gender identity, or pregnancy, one has to wonder if the justification and arguments that commanded bipartisan support will stay limited to sexual assault and sexual harassment. You should pay careful attention because the scope may expand either through additional legislation or court decisions.
Employers that retain arbitration clauses for disputes not covered under the new bill should expect to see more sexual harassment claims. The presence of a claim may provide an employee an avenue out of arbitration, even if that isn’t the primary thrust of the dispute.
Sexual harassment isn’t part of any employer’s business model. It’s contrary to the will (and usually, the knowledge) of management. Thus, while some view this legislation as anti-business interests, the better framing is to avoid disputes through sound policies. You can set the culture of “no tolerance,” create awareness and access for concerned employees, and be prepared to take swift remedial action when necessary.