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Forced Arbitration Ban in #MeToo Cases: What’s Next for Employers?

Feb. 16, 2022, 9:00 AM

Last week, four years after the start of the #MeToo Movement, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which prohibits a common practice employers and businesses use to litigate sexual assault and harassment claims and mitigate liability—pre-dispute arbitration clauses.

President Joe Biden has signaled his support for the legislation and is expected to sign the bill into law shortly. The law would take effect upon signature and apply to any claims that arise or accrue after its enactment.

Employers and companies that currently use pre-dispute arbitration clauses to process sexual assault and harassment claims should begin to amend their business practices accordingly and should also prepare for the potential that current and past allegations of sexual misconduct will enter the public eye.

Arbitration clauses require would-be plaintiffs to pursue lawsuits via private arbitration rather than in civil court. Experts estimate that over 60 million Americans are subject to such clauses in the workplace, and millions more are subject to them as part of consumer contracts and agreements. For over a decade, Democrats have sought to prohibit these agreements, but their efforts have been met with strong Republican opposition, miring the issue in partisan gridlock.

Yet, as the #MeToo Movement began to grab national headlines, exposing pervasive sexual harassment across a myriad of companies and industries (including Congress), stories of victims being forced to pursue claims in private arbitration, rather than open court where their stories would be made public, began to emerge. In a series of high-profile hearings, lawmakers heard testimony from victims and attorneys explaining that arbitration agreements made it difficult to seek redress and allowed companies to hide widespread sexual harassment. At these hearings, Republicans signaled a newfound openness on the issue.

Building on this momentum, Democrats and Republicans successfully negotiated the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which renders pre-dispute arbitration clauses unenforceable for claims involving sexual assault and harassment. On Feb. 7, the House passed the legislation in an overwhelming fashion and the Senate quickly followed up by approving the bill by voice vote three days later.

New Law Lets Plaintiffs Take Claims to Courts

Under the new law, plaintiffs will be able to block efforts to funnel sexual assault and harassment cases into arbitration, enabling them to bring claims in federal, state, and tribal courts. The legislation also prohibits the use of “joint-action waivers,” which prohibit class actions, meaning parties will be able to join to bring high-stakes class action lawsuits alleging widespread sexual assault and harassment.

The legislation is not retroactive, but would apply to all claims that arise after the date it is enacted. Going forward, the new law has potential to substantially alter the landscape of how sexual assault and harassment claims are litigated in-and-out of the courtroom. Among other consequences, employers and businesses should consider the following.

Settlement Leverage: Employers should be prepared to have sexual assault and harassment cases proceed in civil court, where litigation costs may increase and there is greater “jury risk” versus private arbitration. While only a tiny percentage of civil cases ever reach trial, we expect plaintiffs will have significantly more leverage now that binding arbitration is off the table.

Reputation Damage: Because cases brought in civil court will be a matter of public record, employers should understand that the scope and extent of past business practices may reach the public eye. This could create serious reputational and economic consequences for defendants, especially in an era where shareholders and consumers are placing a heavy emphasis on environmental, social, and governance issues.

Future Litigation: The public nature of civil trials not only puts employers and businesses at risk of reputational and commercial harm, but also could open them up to further legal consequences down the line, either from additional individual plaintiffs, future class actions, or state and federal regulators and attorneys general.

Considering these risks, employers and businesses should immediately review their existing employment and consumer contracts, as well as their litigation “playbooks,” to determine how the new law will affect their practices. Employers and businesses also would be wise to review their existing employment and sexual harassment policies to ensure they are taking necessary steps to prevent future claims.

Ban on Non-Disclosure Agreements May Be Next

It is exceedingly rare that Congress passes consequential workplace legislation on a bipartisan basis, and it remains to be seen whether lawmakers can use that momentum to broker agreements on additional measures to prevent sexual assault and harassment. While Democrats will continue to push for the FAIR Act, legislation that would prohibit pre-dispute arbitration in any employment, antitrust, civil rights, or consumer dispute, Republicans are unlikely to support that approach.

A more likely alternative could be a bill that would prohibit non-disclosure agreements covering workplace sexual harassment. One such bill, the EMPOWER Act, was introduced last Congress with bipartisan support and may be a candidate for further consideration.

While its path forward remains uncertain, businesses should monitor the bill and other developments regarding workplace harassment.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Ches Garrison is a counsel with Hogan Lovells in the firm’s Government Relations and Public Affairs practice. He is a member of the firm’s Washington, D.C., office where he helps clients on white collar, financial services, tech reform, and other judiciary matters.