The End of Arbitration? What the Me Too” Law Means for the Future of Employment Arbitration

President Biden just signed into law the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,” known informally as the “Me Too” law. It becomes effective immediately, and amends the Federal Arbitration Act (FAA) to ban the mandatory arbitration of sexual assault and harassment claims.

What does the new law mean for the future of employment arbitration? Can employers still have any type of a mandatory arbitration program? The answers to these questions are not immediately obvious, but you can be assured that the Me Too Bill will make harassment claims more expensive and more complicated to resolve. It is also not a surety that the end of arbitration will be good for victims or potential plaintiffs.

What the law will mean for your business will depend on a number of factors, including where you are doing business (as mandatory arbitration is already prohibited in some states), and whether your company had a mandatory arbitration program in place for customers or employees. However, all businesses may see an uptick in harassment claims, as that often happens whenever there is a very public legal development in this area.

What does the Me Too law say?

The main provision of the law is short enough to reproduce here:

“[A]t the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispose arbitration agreement or predispose joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.”

The terms “sexual assault dispute” and “sexual harassment dispute” are not confined to federal claims, but is any such claim as defined according to “applicable Federal, Tribal, or State law.”

What are the key elements to the law?

ONE - Employers may no longer be able mandate the arbitration of claims of sexual assault or sexual harassment, whether those claims are brought under federal or state law.

The new law does not redefine assault and harassment, and instead defines those terms as any instance where such claims may be brought under applicable federal or state law.

Now more than ever, it is important to understand how the state you are doing business in defines sexual harassment or sexual assault. For example, in New York, sexual harassment is defined far more broadly than it is in Title VII, and constitutes instances where “an individual is subjected to inferior terms, conditions or privileges of employment” on the basis of their sex. Perhaps even more importantly, while Title VII applies only to employers with 15 or more employees, the New York State Human Rights Law applies to employers of any size. Even if you are a small employer to whom Title VII does not apply, if your state has similar laws to New York, the Me Too law could apply to you!

TWO - Plaintiffs also cannot waive their right to bring claims of sexual assault or harassment collectively through a class action.

THREE - Importantly, the law applies to both claims of sexual harassment and assault, and does not just apply to employment disputes. It extends to any person who might sign a mandatory arbitration agreement or a mandatory waiver of their right to bring a class action for a claim of sexual misconduct.

For instance, a “services” company may have previously mandated, through its terms of service, the arbitration of any claims brought by a customer that they were sexually assaulted by an employee. These types of mandatory arbitration clauses will no longer be enforceable.

FOUR - The law provides that it “shall apply with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act.”

Therefore, it will apply to current arbitration agreements, even those signed before the law went into effect.

There may be an argument that a claim of sexual harassment or assault that is now in arbitration can be completed, but companies will certainly not be able to enforce an arbitration mandate going forward.

FIVE - Finally, the law states that it must be a federal judge, not an arbitrator, who decides whether a claim is subject to arbitration.

What should you do now?

According to a 2018 study, 53.9% of nonunion private-sector employers have mandatory arbitration procedures, so the new law will have a far-reaching effect. But depending on where you do business, the law may change very little.

New York, Maryland, Vermont, New Jersey, and Washington have all passed similar laws effectively banning mandatory arbitration for employee claims of sexual harassment in the workplace. In fact, New Jersey’s law is the most expansive of these, and bans the mandatory arbitration of all claims of discrimination, not just sexual harassment. Meanwhile, California has taken things further than any other state and effectively banned all mandatory arbitration agreements in the employment context. Those doing business in any of those states should have already addressed these limitations in their arbitration policies.

Nonetheless, this new law provides a ripe opportunity for every business to review their sexual harassment and arbitration policies. If your policy covers harassment claims, consider changing it for the future. We do not believe it makes sense to have employees who have already signed an agreement re-sign, as this will create administrative headaches.

But you should revise all future mandatory arbitration agreements to affirmatively state that notwithstanding anything else in the agreement, the signatory has the choice to bring their claims of sexual harassment or assault in court, collectively or individually, and that they are not required to individually arbitrate those claims.

For existing employees, create a policy statement that makes clear that they are no longer required to arbitrate harassment or assault claims, even if those are covered in an agreement they may have signed in the past. As long as this carve-out is clear, the old agreements should still be enforceable.

Can you still arbitrate other claims?

Yes. Subject to applicable state laws, companies remain free to mandate arbitration or a waiver of class action rights for all other claims, including salary or wage/hour claims, other types of discrimination, retaliation, or any other kind of liability.

Can you still arbitrate harassment or assault claims?

That now depends on the claimant. We do believe that employees may opt to arbitrate even assault or harassment claims. It will just have to be clear that this is their choice, so forms will have to be developed to give them that choice.

This type of a choice will be easier to enforce if the employee has an attorney, and it may be advisable to suggest that they consult with counsel before choosing to arbitrate a harassment claim.

What about claims which combine sexual harassment or assault with other allegations?

Employees are smart, as are lawyers. You may well see them add on harassment to every claim, just to get out of mandatory arbitration. What are your options then?

While the new law is not clear and will have to be fleshed out in the courts, it does appear that if an employee combines a harassment claim with other claims, you may still be able to require that they arbitrate the non-harassment aspects of their case. Strategically, this will depend on whether harassment or assault is the “main” claim or just tacked on. If harassment is not the primary claim, it may make sense to push the other claims to arbitration, but be ready for a fight. That is a decision best left to you and your counsel.

What about prevention?

There is no hiding this change in the law from plaintiff’s attorneys and employees, and it may well cause an uptick in claims. You may also be facing juries, not arbitrators, in the future. Thus, all employers should take stock of your current training and prevention policies and redouble efforts to prevent sexual harassment or assault from occurring in the first place.

As yourself some key questions:

  • Is training reaching everyone?
  • Is it time to offer a live (not online) training to key executives?
  • Is there a region or business unit where harassment is a problem? Do they need some extra guidance?
The best way to prepare for the law is not to merely change a few sentences in a contract. Businesses should be trying to do more than the bare minimum in this respect, both because of ethics and, thanks to the Me Too law, optics.

Implementing and enforcing zero-tolerance policies can be one of your most powerful tools. Empower your Human Resources department to conduct thorough investigations and act independently to root out misconduct. Put systems in place that ensure that employee complaints are solicited and kept as confidential as possible.

The end goal is to stop sexual harassment before it starts, and well before you face a verdict in the court of public opinion.