Federal Legislation Impacting Arbitration: What Employers Need to Know

The laws that impact arbitration agreements are changing rapidly and it can be hard to keep up with the latest developments. Here are some recent federal developments that employers should pay attention to with respect to their arbitration agreements.

Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “Act”)

On March 3, 2022, President Biden signed the Act into law, amending the Federal Arbitration Act (“FAA”) to invalidate pre-dispute arbitration agreements and joint-action waivers with respect to cases that relate to sexual assault or sexual harassment, at the election of the party alleging such conduct. The Act also invalidates delegation clauses (provisions that would delegate determinations about the applicability of the Act to an arbitrator) for these two types of disputes, and states that any issue as to whether the Act applies to a dispute will be determined by a court under Federal law.

This bipartisan bill was first introduced in 2017 by Sen. Kirsten Gillibrand (D-N.Y.) in response to the #MeToo Movement. Sen. Gillibrand reintroduced it last year alongside Lindsey O. Graham (R-S.C.). Key features of the new law include:

• At the election of the plaintiff or class representative, no pre-dispute arbitration agreement or pre-dispute joint-action waiver will be valid or enforceable with respect to a case filed under “Federal, Tribal, or State law” that “relates to the sexual assault dispute or the sexual harassment dispute.”
  
  
  • Sexual assault dispute – a dispute involving a nonconsensual sexual act or sexual contact, as such terms are defined in section 2246 of title 18 or similar applicable Tribal or State law, including when the victim lacks capacity to consent.
  • Sexual harassment dispute – a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.
  • Joint-action waiver— agreements (whether or not part of a pre-dispute 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.
    
    
• Whether the Act applies to a dispute will be determined under Federal law by a court, not an arbitrator.
• The Act is not limited to employees and applies to all pre-dispute arbitration agreements and pre-dispute joint-action waivers.
• The Act does not impact arbitration agreements that are not “pre-dispute” such as those contained in settlement agreements.
• The Act applies to disputes or claims that arise on or after the enactment date, March 3, 2022.

The Act does not necessarily require employers to implement revised arbitration agreements—but arbitration agreements may not be enforceable as to these specified disputes if the plaintiff elects not to proceed with arbitration. Now is a good time for employers to review their arbitration agreements with counsel to ensure existing language is consistent with, and takes into consideration, this new law.

The Forced Arbitration Injustice Repeal Act of 2022 (“FAIR Act”)

On March 17, the House of Representatives passed the FAIR Act (H.R. 963), which would amend the FAA to ban pre-dispute arbitration agreements and pre-dispute joint action waivers in employment, consumer, antitrust, or civil rights disputes. If signed into law, the FAIR Act would represent a dramatic shift for employment-related arbitration programs. It is not clear whether there would be enough bipartisan support to get the votes necessary to pass in the Senate (the Ending Forced Arbitration Act passed the House with a 335-97 vote demonstrating broad bipartisan support, but the FAIR Act vote was much closer—222-209). Employers should continue to monitor the FAIR Act as it wends its way through Congress, because if passed, it could completely change the employment arbitration landscape.