Read Our COVID-19 Resources and Information

Chipping Away at Employment Arbitration Agreements

In early March 2022, President Biden signed into law the “Ending of Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” (“Act”).  This Act makes pre-dispute (entered into before a dispute arises) agreements to arbitrate sexual harassment and sexual assault claims invalid and unenforceable.  This Act also renders invalid and unenforceable a pre-dispute agreement that prohibits or waives the right of one of the parties to the agreement to participate in a joint, class, or collective action concerning sexual harassment or sexual assault disputes.  This Act amends the Federal Arbitration Act (“FAA”), applies to most employers across the United States, and now signed into law, has immediate effect.

This Act may have an impact on pre-dispute arbitration agreements used by California employers. Over the past several years, California employers have often asked employees, as a condition of employment, to sign an arbitration agreement wherein both the employer and the employee promise to bring any employment-related dispute that may arise in the future before an arbitrator, rather than a court.  These agreements typically required the employer to pay the arbitrator fees and the costs of the arbitration and required both parties to waive their respective rights to a jury trial of most employment disputes that may arise in the future. 

The practice of requiring employees to sign pre-dispute arbitration agreements as a condition of employment was made unlawful by the California legislature as of January 1, 2020.  The California law prohibiting such a practice was immediately challenged, and a United States District Court issued a temporary and later permanent injunction, prohibiting California from enforcing this law on the grounds that it was pre-empted by and interfered with the FAA.  As of September 15, 2021, the Ninth Circuit Court of Appeals lifted the injunction, allowing California to enforce this law, and reversed the District Court’s ruling.  More challenges to this California law are expected, but as of today, California law prohibits forcing an employee to sign a pre-dispute arbitration agreement as a condition of employment.

As court battles over California’s prohibition on mandatory pre-dispute arbitration agreements continue, many California employers have elected to continue to request that employees sign pre-dispute arbitration agreements, but not as a condition of employment.  Rather, many employers ask employees to sign such agreements on a voluntary basis.  The Act, however, makes any pre-dispute arbitration agreement of sexual harassment and sexual assault claims and a class or collective action waiver of sexual harassment or sexual assault claims invalid and unenforceable, at the election of the claimant or class representative, regardless of whether the pre-dispute arbitration agreement was voluntarily entered into or made as a condition of employment.

Further, when California employers are sued for sexual harassment, claimants or class representatives often raise other types of claims, like discrimination or retaliation claims. The Act, however, does not prohibit the arbitration of sexual discrimination or retaliation claims.  If your company is confronted with a sexual harassment or assault claim, and the claimant elects to declare the arbitration agreement invalid as to the sexual harassment claim, your company may be forced to choose whether to litigate all claims in court or to litigate the various claims separately, with the sexual harassment claims heard by a court and the remaining claims before an arbitrator.

In light of these recent changes to federal and California law on pre-dispute arbitration agreements, it is recommended that employers review their practices and update their agreements, if using arbitration agreements or considering the use of arbitration agreements.  If threatened with or sued for a single, joint or class sexual harassment or assault claim, consult counsel as soon as possible to determine the best litigation strategy.   

For questions about pre-dispute arbitration agreements or other matters, reach out to our experienced Labor & Employment Department at 408.286.5800 or e-mail eileen.kennedy@berliner.com.