New Law Blocks Arbitration of Sexual Harassment Claims

Arbitration agreements sexual harassment law has changed with the signing of H.R. 4445, making arbitration unenforceable for sexual assault and harassment claims. Employers must now revise their policies to comply with this new federal regulation and protect employee rights.

New law blocks arbitration of sexual assault, harassment claims

Author: Jacob M. Monty

Arbitration agreements have long been a standard practice across all industries. With the signing of H.R. 4445 into law by President Joe Biden, however, arbitration agreements are no longer enforceable against sexual assault or sexual harassment claims.

Standard practice no more
In February, Congress passed a historic bill some have referred to as the “#MeToo” bill. President Biden signed it into law on March 3, and as a result, certain claims are no longer allowed to be mandatorily arbitrated, regardless of a pre-existing arbitration agreement. The new law also invalidates agreements that waive an employee’s right to file claims through a class action lawsuit. As a result, a predispute arbitration agreement that prohibits employees from filing a lawsuit against their employer, either individually or as a class action, based on alleged sexual harassment or assault is now invalid and unenforceable.

H.R. 4445 amends the Federal Arbitration Act (FAA), which was enacted in 1925 and last amended in 1990. The FAA preempts state laws regarding arbitration agreements, and therefore, predispute arbitration agreements are generally valid and enforceable.

The new law applies to agreements entered into before the bill’s signing where a conflict or dispute hasn’t yet arisen or accrued. It doesn’t, however, preempt existing claims that arose before the law went into effect.
As a silver lining, although employees may not waive their right to a lawsuit before a dispute arises, they may waive the right after the fact and opt to proceed with arbitration. You may also keep optional arbitration clauses in your employment agreements.

To be determined
Although the new law is clear in some areas, there are some things that must be left to the courts to decide. The new law states that courts, rather than arbitrators, must determine if it applies to a certain predispute arbitration agreement. What is yet to be determined is whether it will allow all claims in a “case” to proceed to trial so long as one of the claims on the petition is a sexual assault or sexual harassment claim or whether the employee will continue to be bound by the predispute agreement to arbitrate all other claims with the exception of the sexual assault or sexual harassment claims.

A possible carveout?
Although some employers may now be worried, there’s one other course you can take to avoid court and large verdicts from sympathetic juries with it. You should consider amending your arbitration agreements to include a jury trial waiver when the arbitration agreement isn’t enforceable.

In 2004, the Texas Supreme Court found jury waiver agreements don’t violate public policy if they are voluntarily made with knowledge of the legal consequences. Including jury waivers in an arbitration agreement for claims barred from arbitration by applicable law could curtail the burden of a nuclear verdict, especially for small employers. The absolute best practice to follow, however, is to treat all employees with respect and follow up on complaints.

At the end of the day, most employers won’t want to protect an employee who sexually assaults or harasses their other employees. As of last year Texas now also has a broadened definition of sexual harassment. Unlike federal law under Title VII of the Civil Rights Act of 1964 (where sexual harassment claims only apply to employers with 15 or more employees), Texas defines an employer as a person who employs one or more employees. Therefore, all employers in Texas should be wary of additional liability and ensure they follow best practices and amend their arbitration agreements as needed.

Jacob M. Monty is the managing partner at Monty & Ramirez LLP in Houston and can be reached at 281-559-6448 or jmonty@montyramirezlaw.com.

This article was originally written by Jacob M. Monty for the Texas Employment Law Letter.