An End to Forced Arbitration

In a bipartisan effort, Congress recently passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”). In an arbitration agreement, two parties agree to submit their claims to a neutral arbitrator rather than submit those claims to a court (or jury). The sweeping effect of this new law is to offer an additional option to employees who may have signed an arbitration agreement as part of their standard employment contract or severance agreement.

Let’s assume that an employer, which we’ll call Big Inc., has just fired one of its employees, whom we’ll call Sarah. Sarah worked hard for six years to earn her way to a big promotion. However, as soon as Sarah got her promotion, she started facing problems with her supervisor, Adam. Adam would harass her relentlessly about the way she dressed, about her work product, and sometimes even lob gender-charged curses her way. Sarah reported Adam’s actions to HR, but never received a response. She reported him again after Adam pushed her in the break room. Still no word from HR.

After months of enduring this harassment, Sarah can’t take it anymore. She quits. The next day, Big Inc. sends Sarah an email with a generic “sorry to see you go” message that includes the following line: “Allow this email to serve as a reminder about the provisions of the contract you signed at the start of your employment with Big Inc.” A contract that, you guessed it, included a binding arbitration agreement. About a week later, Sarah has seen a lawyer who thinks she has a good chance of winning a high-value jury award in a sexual harassment lawsuit against Big Inc. The only thing standing between her and the courthouse doors is that pesky binding arbitration agreement she signed six years ago.

What effect does the EFAA have on the above scenario? For Sarah, it gives her options. The EFAA does not, as the name may suggest, simply terminate all arbitration agreements when a dispute arises in which the employee alleges sexual harassment or assault. Instead, the Act provides the employee with what is essentially a back door. At the employee’s option, he or she may choose to invalidate a pre-dispute arbitration agreement. Here, pre-dispute means an arbitration agreement that was signed before the parties started quarreling, i.e., before Sarah filed a charge of discrimination or her lawsuit. Thus, if Sarah doesn’t want to enter arbitration with Big Inc. because she and her lawyer think she has a good shot at a lucrative award from a jury, she can choose to invalidate the arbitration agreement and proceed to court. On the other hand, Sarah may instead decide that arbitration is a perfect fit for the scenario. Arbitration is overseen by a neutral arbitrator who can resolve all of Sarah’s claims relatively quickly. In addition, all records of the arbitration generally remain confidential, which Sarah may prefer. Thus, the practical effect of the Act is to put more bargaining power into the hands of the employee.

Does the Act mean that any and all arbitration agreements are now useless? No, but it does mean that employers should take a look at their current employment contracts that include arbitration agreements. Inserting verbiage such as “excluding disputes that cannot be arbitrated under state or federal law” may keep the agreement intact. In addition, all other claims that don’t include sexual harassment or assault can still be arbitrated. Nonetheless, employers may need to consult with an attorney for assistance with conforming with the EFAA.

For religious organizations that want to have agreements for Christian dispute resolution, there are two things to consider. First, it is unclear that the statute would control an agreement for dispute resolution that is based on the free exercise of religion. Second, an option is to have employees agree to participate in Christian mediation before going to the courts or arbitrating. This would not be a binding arbitration agreement.

While the EFAA is about how parties resolve cases arising out of sexual harassment and assault disputes, a better approach is not to have the dispute in the first place. Implementing a robust HR system for documenting and reporting misconduct could have made the workplace happy for Sarah, prevented Sarah’s lawsuit, and saved Big Inc. a lot of money and time, arbitration agreement notwithstanding.

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Featured Image by Rebecca Sidebotham.