Sexual Harassment Legislation Would Require Amendment of Arbitration Agreements

Arbitration Agreement Without Sexual Harassment Carveout

A proposed law may invalidate your company’s arbitration agreement unless you amend it to carve out sexual harassment and gender discrimination claims. If you run a business, pay attention to the Ending Forced Arbitration of Sexual Harassment Act of 2017. Failure to comply would bar arbitration of all disputes, not just sexual harassment and gender discrimination disputes.

You can read the Bill here. The sponsoring Senators’ press release is available here. Here is what you need to know:

1. The Bill is Not Law… Yet

There is a relatively long process before a Bill becomes a law. Given the social climate, some version of this Bill will likely pass. It’s simple, effective, and likely to gain traction because of the burgeoning #MeToo movement.

If you need a refresher on how a Bill becomes a law:

2. If This Bill Passes, Quickly Amend Your Arbitration Agreement to Carve Out Sexual Harassment Claims

If the Bill passes as written, you will need to amend your arbitration agreement (and possibly your employee handbook). It states:

Notwithstanding any other provision of this title, no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of a sex discrimination dispute.

This is a simple if-then statement, although it is written backwards. Under the proposed law, IF your agreement requires arbitration of sexual harassment or gender discrimination claims, THEN it is invalid or unenforceable.

TAKE NOTE: this language is worrisome because it invalidates your entire arbitration agreement for all purposes. Nothing in this language clearly limits its effect to sex discrimination disputes.

For example, if you are sued under the Fair Labor Standards Act for failure to pay overtime, the plaintiffs can argue that your arbitration agreement is invalid because it fails to carve out sexual discrimination disputes–even though the claim has nothing to do with sexual harassment. You may counter that applying the law so broadly is nonsensical. Nevertheless, you are now spending money to ask the Court to interpret a statute and you cannot control the result. You could have avoided this issue by amending your arbitration agreement.

The Senators may have good reasons to take the aggressive approach that appears to have been adopted in this Bill. They may believe that a rule without a penalty would encourage employers to keep their current arbitration agreements and hope that ignorant victims would not take note of their new rights.

Regardless, unless the legislation is amended, be prepared to issue a new arbitration agreement and handbook that carves out sexual harassment and gender discrimination disputes.

3. For Egregious Sexual Harassment Claims, You Were Going to Court Anyway

This Bill applies to sexual harassment and gender discrimination claims under Title VII of the Civil Rights Act of 1964. Before a lawsuit may be filed, the victim must file a charge with the Equal Employment Opportunity Commission (EEOC). If the EEOC believes there is a valid claim, it will file its own lawsuit.

Notably, the EEOC’s right to sue is independent of the victim. Under the current law, you can compel the victim to arbitrate their personal claims for money damages. However, the EEOC cannot be compelled to arbitrate because it did not sign an arbitration agreement.

Even if you settle with the victim, the EEOC may prosecute its claims against your company in federal court. They will seek injunctive relief to prevent you from repeating the same alleged behavior in the future. If the case goes to trial, the victim will be a witness who tells their story in open court. You cannot prevent the victim from testifying by signing a confidentiality agreement in the settlement of the arbitration.

Further, if your company settles with both the victim and the EEOC, the EEOC will (with near 100% certainty) issue a press release that makes the US Government look like a heroic white knight that has stopped your company’s abusive practices. The Atlanta field offices of the EEOC have not historically been willing to compromise this position.

Thus, if the EEOC wants to make an example of your company, the value of your arbitration agreement with the victim will be limited.

4. You Can Still Agree to Arbitrate With the Victim After the Claim Arises

Notably, the Bill only applies to “predispute arbitration agreement[s].” It does not prevent your company from offering arbitration as a dispute resolution mechanism to the victim after his or her claim has been filed. There may be good reasons for both parties to agree to arbitrate a sexual harassment or gender discrimination dispute. You will have to judge this on a case-by-case basis.

Conclusion

If this Bill passes, your company will need to amend its arbitration agreement to include language similar to the following: “Notwithstanding anything in this agreement to the contrary, company and employee have not yet agreed to arbitrate sexual harassment or gender discrimination claims arising under Title VII of the Civil Rights Act of 1964.”

You need a plan to address this issue before the Bill is signed into law. While getting your employees to sign new agreements can be labor intensive, we can provide a strategy to ease the burden.

Please feel free to contact me if you would like to discuss your handbook and arbitration agreement.

 

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