It is Time to Review Your Employment Arbitration Agreements

March 2022

By Michael G. Charapp
Charapp & Weiss LLP

Whether to use a pre-dispute arbitration agreement for employment issues is a choice for each dealer to make. If you have chosen to use such an agreement, it is time to review it.

In October 2018, we wrote an article titled The #MeToo Movement and Workplace Arbitration, in which we explained that a U.S. Supreme Court opinion that validated the use of mandatory, pre-dispute arbitration agreements in employment disputes caused states to attack arbitration of employment disputes involving sexual harassment claims. Since most employers choose to have their arbitration agreements subject to the Federal Arbitration Act, state action was ineffective.  As a result, the U.S. Congress passed The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which President Biden signed into law on March 3, 2022.

The Act amends the Federal Arbitration Act so that “at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representation of a class or in a collective action alleging such conduct, no pre-dispute arbitration agreement or pre-dispute 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.”

What does this mean for your dealership? Should any sexual harassment or sexual assault claims be brought against your dealership by an employee after March 3, 2022, any pre-dispute employment arbitration agreement you entered with your employees can no longer govern determination. An employee may bring a lawsuit, or even a class action case, against the dealership in federal or state court alleging sexual assault or sexual harassment.

It is time to review your pre-dispute employment arbitration agreements if you have chosen to use them. Does your arbitration agreement have mandatory arbitration provisions and class-action waivers that could cover sexual harassment and sexual assault disputes?  If so, there are some steps you need to take.

  • Recognize that the provisions mandating arbitration and class-action waivers for sexual assault or sexual harassment disputes are no longer enforceable.
  • Amend your agreement so it complies with the FAA as amended by this Act to specifically exclude sexual assault and sexual harassment claims.
  • Although this Act only affects sexual assault and sexual harassment claims, make sure that your predispute employment arbitration agreement provides for arbitration “except as prohibited by law” so the whole agreement is not ruled illegal by a judge.

Like any new law, this legislation leaves several questions unanswered. If the sexual assault or sexual harassment claims are mixed in with others, can the others be arbitrated? Will courts be able to quickly act on specious sexual assault or sexual harassment claims brought to defeat application of an arbitration provision? In cases of sexual assault or sexual harassment that must go to court, will jury waivers be effective?  These are all issues that must be decided, and under the new law they are to be decided by courts, not by arbitrators.