On February 10, 2022, the U.S. Senate passed the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.” This bipartisan bill seeks to amend the Federal Arbitration Act (“FAA”) to make it easier for victims of sexual misconduct to litigate their legal claims in court instead of being forced to arbitrate. The bill invalidates and renders unenforceable pre-dispute arbitration agreements in cases involving sexual assault or sexual harassment. It fixes the ‘broken system’ by barring businesses and employers from using forced arbitration clauses in employment contracts to silence the victims of workplace sexual misconduct. The Federal Arbitration Act (“FAA”) applies to employment contracts except those involving employees working in interstate transportation. Section 2 of the FAA states that written agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” This provision applies to both pre-dispute and post-dispute arbitration agreements. Accordingly, the FAA authorizes mandatory arbitration clauses in the United States. Earlier, many states passed similar laws that carved out an exception barring mandatory arbitration in sexual misconduct claims. However, since the FAA preempts state law, circuit courts had to enforce mandatory arbitration agreements even if the cause of action arose under state law.
In Gilmer v. Interstate/Johnson Lane Corp., the United States Supreme Court upheld the enforceability of mandatory arbitration agreements in the employment context. In that case, the plaintiff’s claim under the Age Discrimination and Employment Act was subjected to compulsory arbitration because he agreed to arbitrate with the defendant when he signed his registration application to the New York Stock Exchange. The Committee on the Judiciary’s Report on the Me-Too Bill noted that the decision in Gilbert ignores the legislative intent of the FAA. Gilbert upheld the enforcement of forced arbitration clauses, which prevented the plaintiff in that case from vindicating a state or federal statutory right. However, the drafters of the FAA did not intend to enforce binding arbitration agreements in contracts between parties with unequal bargaining power. Nor did the drafters intend that arbitration was appropriate to decide substantive questions of law. This raises the important question of whether Gilbert was correctly decided.
Over the past few decades, the number of consumers and employees who are subject to forced arbitration agreements has considerably increased. Most of the people who sign these agreements do not know that they have waived their right to access the courts. This is primarily because mandatory arbitration provisions are often contained in contracts of adhesion i.e., standardized pre-printed form contracts presented on a take-it-or-leave-it basis. This begs the question whether a true “meeting of the minds” has occurred between the parties.
When forced arbitration clauses in employment contracts are coupled with non-disclosure agreements, the mandatory arbitration also becomes confidential. The secrecy of arbitration outcomes prevents accountability and damages the careers of the targets of sexual harassment. It further prevents similarly situated persons from learning about illegal conduct, thereby contributing to the “culture of silence that protects perpetrators at the cost of their victims.” Moreover, victims of sexual misconduct are often offered low settlement in arbitration cases because arbitrators tend to favor employers and are less likely than jurors to give multimillion-dollar awards to workers. This is because “the company is entitled to choose the arbitrator who decides the case, as well as the rules of procedure and evidence that apply, and the distribution of costs of the arbitration.” All of this obstructs the victims of sexual misconduct from accessing justice.
Another drawback of forced arbitration is the lack of class representation. Mandatory arbitration clauses also include class action waivers, which dissuade large groups of consumers or workers from bringing their claims as a class. Moreover, the amount in controversy is too small that it is not worthwhile to pursue individual arbitration at all. Consumers and workers do not have enough money to hire lawyers and arbitrate their claims. In Epic Systems Corp. v. Lewis, the Supreme Court upheld the enforcement of employment contracts in which workers waive their right to “collective litigation” against their employer. The Court noted that Section 2 of the FAA overrides Section 7 of the National Labor Relations Act, which guarantees the workers the right to self-organization for the purpose of collective bargaining. The Epic case highlighted the declining power of workers in the United States.
Admittedly, arbitration as a dispute resolution mechanism has its advantages. Still, it is against public policy if victims of serious sexual misconduct are “constrained to pursue relief from decision makers who are not trained as judges, are not qualified to act as courts of law, and are not positioned to ensure that such victims are accorded both procedural and substantive due process.” In the wake of the Me Too movement, many companies including Google, Facebook, and Microsoft acknowledged this ‘broken system’ and accordingly, ended forced arbitration for sexual harassment claims. However, should the exclusion be restricted to sexual harassment claims alone? There exists no policy reason to differentiate the “insidiousness of sexual harassment from racial discrimination or wage theft.” Thus, it is important for Congress to revisit the existing legislative framework, clarify the scope and limits of the FAA, and devise a fairer system.
About the Author: Gursehaj Singh is a dual degree LL.B./J.D. candidate at Cornell Law School. He is originally from New Delhi, India. Prior to joining Cornell Law, he attended Jindal Global Law School, where he pursued a bachelor’s degree in business administration and law. He will be joining the New York office of White & Case LLP as a 2022 Summer Associate.