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Ending forced arbitration

Ending forced arbitration


By Laura Farley

 

Over the past few decades, mandatory predispute arbitration agreements (also known as forced arbitration) have become widespread in the fine print of employment and consumer contracts. Forced arbitration agreements require individuals to pursue their claims in arbitration, which lacks transparency, removes the full weight of a court’s precedential guidance, and eliminates an individual’s right to a jury trial. Forced arbitration agreements are problematic in employment and consumer disputes, particularly in disputes related to sexual harassment and sexual assault. 

Practically speaking, until recently, these agreements created a situation in which, if an employee signed a forced arbitration agreement on their first day of work and then was sexually assaulted by their supervisor a year into their employment, the employer was entitled, under the Federal Arbitration Act (FAA), to force the suit into private arbitration. Forcing arbitration in this context has had the effect of silencing survivors of sexual assault and harassment while denying them an opportunity to seek justice in court—or even simply to share their experiences—which often compounds the damage done to the individual while protecting harassers and companies from public scrutiny.

Fortunately, this is no longer the case. On March 3, 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (H.R. 4445), which amends the FAA to void all forced arbitration agreements for claims of and related to sexual assault and harassment. As a result, individuals may now bring their claims in court and before a jury. The Act, which, as one senator explained, “represents one of the most significant workplace reforms in American history,” will have a vast and immediate impact, and “will help [ ] fix a broken system that protects perpetrators and corporations and end the days of silencing survivors.”1

Still, as explained herein, courts will be tasked with interpreting the Act to consider what claims it covers—including instances in which there are multiple claims or multiple defendants—and, further, to consider the Act’s applicability to existing claims.

The act's history and significance

Forced arbitration agreements have increased dramatically over the past few decades. They have become ubiquitous in consumer contracts, and there are an estimated 60 million workers subject to forced arbitration provisions at their place of employment.2 Notably, forced arbitration clauses are especially common in female-dominated industries,3 and the ACLU has reported that 57.6 percent of female workers are subject to forced arbitration.4 Meanwhile, arbitration outcomes are heavily skewed in favor of companies: between 2016 and 2020, on average, only 1.9 percent of employees who brought claims actually won a monetary award in arbitration.5

Simply put, forced arbitration is unjust in disputes of and related to sexual harassment or assault. Forcing individuals into arbitration in this context denies survivors of sexual assault and harassment the benefits of our judicial system. As an initial matter, arbitrators or arbitration providers are generally selected by the employer or company.6 Then, from the outset of the case, individuals are disadvantaged because discovery is limited; individuals forced into arbitration often cannot meaningfully pursue discovery that would help prove their case.7 Not only are these survivors denied the right to be heard by a federal or state court judge throughout their case, but, at its end, they are also denied their right to a jury trial, which is otherwise guaranteed under the Minnesota Human Rights Act (MHRA) and Title VII, as amended.8 Further still, after a binding decision from an arbitrator, the chances of an appeal are incredibly slim: It is only in an “unusual circumstance” that an arbitration award is overturned because they are accorded “an extraordinary level of deference,” making a “review of arbitration awards [] extremely limited, and [courts] are not to review the merit.”9

Moreover, unlike the judicial system, the results of arbitration are generally kept secret—either by an existing non-disclosure agreement signed at the time of the arbitration agreement or by the rules of arbitration.10 Forced arbitration therefore often requires individuals to conceal their allegations. In the context of sexual harassment or assault, this silence affords employers and companies protection from public scrutiny, leaving corporate reputations unscathed. Ultimately, concealing allegations from the public has created a system with few consequences, permitting abusers to continue harming and harassing victims, thereby perpetuating institutional protection for harassers and companies that fail to provide a safe place for their employees to work.11 

The Act seeks to right this injustice:

The premise of this legislation is simple: Survivors of sexual assault or harassment deserve their day in court. They should be able to choose whether to bring a case forward, instead of being forced into a secret arbitration proceeding where the deck is stacked against them…. 
[F]orced arbitration clauses have enabled sexual abusers to escape scrutiny while their victims are compelled to stay silent. That is wrong.12

After months of bipartisan negotiations and discussions, the Act was introduced in the House of Representatives in July 2021, with a nearly identical measure introduced in the Senate. The bill passed in both chambers with strong bipartisan support—a rarity these days.

Language of the act

While impactful, the language of the Act is concise, adding just two sections to the FAA.

Section 401 of the Act defines terms useful to its interpretation. First, it defines the two types of covered agreements, “predispute arbitration agreements” and “predispute joint-action waivers.” Predispute arbitration agreements are individual agreements to arbitrate. Predispute joint-action waivers are agreements that prohibit or otherwise waive a party’s right to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum.

The Act then defines the types of disputes covered under the statute. The term “sexual assault dispute” means a dispute involving a “nonconsensual act or sexual conduct.” The term “sexual harassment dispute” is broader and covers disputes “relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.”

Section 402 of the Act then addresses the applicability of the Act. Under the Act, effective immediately, predispute agreements and joint-action waivers in the context of sexual assault or harassment disputes are no longer valid or enforceable:

[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 predispute arbitration agreement or predispute 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.

Thus, an employer cannot force an individual with a claim of or relating to sexual harassment or assault to arbitrate those claims. The individual bringing the claim can still choose to arbitrate claims of or relating to sexual harassment or sexual assault—uncommon as this choice might be—where a predispute agreement has already been signed.

Finally, the Act establishes that its interpretation is determined under federal law, and any disagreement related to applicability, validity, or enforceability of an arbitration agreement is “determined by a court, rather than an arbitrator.” Thus, the applicability and enforceability of a forced arbitration agreement would be decided by a court even if the parties had agreed to delegate such decisions to an arbitrator.

The act's scope and applicability

Courts will be tasked with interpreting the Act to consider what claims the Act covers—including instances in which there are multiple claims or multiple defendants—and, further, to consider the Act’s applicability to existing claims.

The Act covers all claims related to sexual harassment or assault.

When an employee or consumer files a case alleging sexual harassment or assault, a single case may include multiple, often inseparable claims alleging retaliation, common law torts, or other employment-related claims, under varying state and federal laws. For example, an individual who is sexually harassed by a co-worker may report the harassment to their employer, only to face retaliation for making that report. That individual may also have related tort law claims under negligence theories, such as a claim for negligent supervision, if the employer failed to adequately supervise the harasser. Further, some claims might be asserted only against the defendant company, while others might be asserted against individuals. Each of these related claims is covered under the Act because claims “related to” sexual harassment and assault are unambiguously included within an individual’s case and fall within the protections of the Act.

Under Section 401, the Act defines a “sexual harassment dispute” to mean “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, tribal, or State law.”13 Further, Section 402 explicitly notes that “no predispute arbitration agreement or predispute 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.”14 Thus, the Act provides individuals the option to bring their full case (i.e., all causes of action) related to sexual assault or harassment into court. 

It is important to note, however, that in covering related claims, the Act does not create a new burden on plaintiffs to prove that their claims are related. As the legislative history makes clear, the Act “does not create any new mechanism to allow for dismissal, nor does it require that victims have to prove a sexual assault or harassment claim before the rest of their related case can proceed in court.”15

Similarly, related claims may exist even without an underlying sexual harassment or assault claim. The word “case” as used in Section 402 of the Act should be interpreted to mean that no claim asserted together in a case with a sexual assault or harassment claim can be forced into arbitration. Explained differently, “for cases which involve conduct that is related to a sexual harassment dispute or sexual assault dispute, survivors should be allowed to proceed with their full case in court regardless of which claims are ultimately proven.”16 Again, the legislative history supports this interpretation: Where “a sexual assault or harassment claim is brought forward in conjunction with another related claim and the assault or harassment claim is later dismissed,” the Act “should not be interpreted to require that [] the court must remand the other claim back to forced arbitration.”17 To find otherwise would create the “undesirable effect of hiding corporate behavior such as retaliation and discrimination against women who report assaults and harassment.”18 It would also create the undesirable effect of splitting causes of action, resulting in judicial inefficiency with related claims in two separate forums.

As it relates to individuals and litigants in Minnesota, the Act applies to individuals with claims under the MHRA. This is notable because the MHRA is unique in that it defines sexual harassment explicitly, thus making it clear what facts may be involved in a sexual harassment or assault dispute.19 The following conduct, which constitutes sexual harassment under the MHRA, is covered under the Act:

Unwelcome sexual advances, requests for sexual favors, sexually motivated physical contact or other verbal or physical conduct or communication of a sexual nature when:
(1) submission to that conduct or communication is made a term or condition, either explicitly or implicitly, of obtaining employment…;
(2) submission to or rejection of that conduct or communication by an individual is used as a factor in decisions affecting that individual’s employment…; or
(3) that conduct or communication has the purpose or effect of substantially interfering with an individual’s employment… or creating an intimidating, hostile, or offensive employment…

Given the MHRA’s broad definition of sexual harassment, the Act thereby affords survivors of sexual harassment and assault the opportunity to bring these MHRA claims in court, regardless of whether they signed a predispute arbitration agreement.

The Act is effective immediately and retroactively. 

The language of the Act, standing alone, unambiguously establishes that it “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.”20 (Emphasis added.) Thus, the Act is applicable to cases filed after its enactment and supports a reading that it applies to these disputes, regardless of when the underlying sexual harassment or assault took place.

Some employers may argue this language bars certain existing claims so they can continue to force matters into arbitration. This argument, however, relies solely on a marginal note to the Act, which states that “[t]his Act, and the amendments made by this Act, shall apply with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act,” which was March 3, 2022.21

Yet despite reports to the contrary, this language is not part of the Act. Marginal notes such as this have no effect on a statute’s scope or application because they are not part of the law; courts may simply look to marginal notes (as they would look to section headings) to help clarify legislative intent where a statute’s meaning is otherwise ambiguous. Here, particularly given the plain language of the Act, this marginal note should be interpreted as merely clarifying that the Act is inapplicable to claims already filed in arbitration. Put another way, the Act does not necessarily provide an opportunity for someone to remove themselves from currently active arbitration.

Giving any further weight to this marginal note yields results that are unintelligible and contrary to the purpose of this legislative effort. It is illogical to interpret the Act to conclude that Congress intended that someone sexually assaulted at work on March 2, 2022, would be forced to bring their claim in arbitration, whereas someone sexually assaulted the next day could pursue their claims in court. This is particularly true because there is no meaningfully negative impact to companies and employers. Regardless of forum or venue, a claimant still has the burden to prove their case. Proceeding in court—rather than arbitration—does not lessen this burden, and “[i]t does not hurt business to make sure that people who are harassed in the workplace get treated fairly.”22 

Interpreting the statute as retroactively effective is consistent with the legislative history of the Act. During debate, Congress clarified that the Act is retroactive “as to contracts currently signed,” but not to “cases currently pending.” Consistent with this notion, legislative debate highlighted the importance of the Act’s retroactive impact. For example, U.S. Sen. Charles Schumer noted that “[t]he good news about this legislation is all the clauses that people already signed in their employment contracts, even when they didn’t know about it, will no longer be valid. So it not only affects the future but affects those who signed in the past.”23 Ultimately, to meet the purpose of the Act, courts must interpret it to apply retroactively to cases not yet filed in arbitration, to provide survivors of sexual harassment and assault the choice of how to pursue their claims.

Conclusion

Plaintiffs can now choose to bring claims of sexual assault and harassment in court, without regard to forced arbitration provisions, offering survivors of sexual assault and harassment a meaningful choice in pursuing their claims. This will allow individuals to avoid arbitration, which is often skewed in favor of employers while forcing allegations out of public view. 

Employers would be wise to review their arbitration and other employment and consumer agreements to ensure that they comply with the Act, in addition to other state and federal laws. Employers should likewise be mindful in evaluating employee or consumer claims when considering whether to compel arbitration. 

Although courts will be tasked with interpreting the practical impacts of the Act, including the applicable timing and what constitutes a related claim, the Act is ultimately a meaningful step to empower survivors of sexual assault and harassment to seek accountability and justice. 

NOTES

1Congressional Record—Senate, S627 (2/1/2022).
2 “The growing use of mandatory arbitration,” Economic Policy Institute (EPI), 4/6/2018, https://www.epi.org/publication/the-growing-use-of-mandatory-arbitration-access-to-the-courts-is-now-barredfor-more-than-60-million-american-workers/.
3 Congressional Record—Senate, S627 (2/1/2022).
4 Id.
5 Forced Arbitration in a Pandemic: Corporations Double Down, American Association for Justice, 10/27/2021, https://www.justice.org/resources/research/forced-arbitration-in-a-pandemic#:~:text=Despite%20roughly%2060%20million%20workers,in%20forced%20arbitration%20in%202020.
6 Katherine V.W. Stone & Alexander J.S. Colvin, Econ. Policy Inst., The Arbitration Epidemic: Mandatory Arbitration Deprives Workers and Consumers of their Rights 17 (2015), https://www.epi.org/publication/the-arbitration-epidemic/. 
7 See Katherine Palm, Note, Arbitration Clauses in Nursing Home Admission Agreements: Framing the Debate, 14 Elder L.J. 453, 478 n.172 (2006). 
8 Minn. Stat. §363A.33, subd. 6.
9 SBC Advanced Sols., Inc. v. Commc’ns Workers of Am., Dist. 6, 794 F.3d 1020, 1027 (8th Cir. 2015) (quotations and citations omitted); see United Paperworkers Int’l Union, AFL–CIO v. Misco, Inc., 484 U.S. 29, 38 (1987) (“[A]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision.”).
10 For example, the American Arbitration Association states that arbiters of consumer disputes must “maintain the privacy of the hearing to the extent permitted by applicable law.” Nat’l Consumer Disp. Advisory Comm., Consumer Due Process Protocol, Principle 12.2, Am. Arbitration Ass’n, https://www.adr.org/sites/default/files/document_repositoryy/Consumer%10Due%20Process%20Protocol%20(1).pdf.
11 Congressional Record—Senate, S626 (2/1/2022). 
12 Congressional Record—Senate, S626 (2/1/2022.)
13 9 U.S.C. §401(4) (emphasis added).
14 9 U.S.C. §402(a).
15 Congressional Record—Senate, S626 (2/1/2022).
16 Senate, S626–27. (2/1/2022). 
17 Congressional Record—Senate, S626 (2/1/2022).
18 Congressional Record—Senate, S626 (2/1/2022). 
19 Minn. Stat. § 363A.03 subd. 43. 
20 9 U.S.C. §402 (a).
21 9 USCA §401 Note, Sec. 3. 
22 Congressional Record—Senate, S628 (2/1/2022). 
23 Congressional Record—Senate, S628 (2/1/2022). 


Laura Farley is an associate attorney at Nichols Kaster, PLLP. She represents individuals in employment and civil rights litigation.


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