There have been many actions in the courts and legislatures across the country lately involving arbitration. Two significant developments have come from Congress and from the Supreme Court. Legislatively, Congress has amended the Federal Arbitration Act (FAA) to make pre-dispute arbitration agreements relating to claims of sexual assault or sexual harassment invalid and unenforceable, and also to prohibit waivers of the right to bring such claims on a class or collective basis. Just across First Street in Washington, D.C., judicially, the Supreme Court has ruled that a party’s right to attempt to send a case to arbitration after first litigating the case does not hinge on whether the delay prejudiced the other party.
Law ends arbitration of sexual harassment claims
The FAA generally permits employers to enforce pre-dispute mandatory arbitration agreements with employees, precluding claimants from publicly filing claims in federal and state court. Passed by Congress, and signed by the president, the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act” recently became law and amends the FAA. Effective March 3, 2022, any such claims that arise or accrue on or after that date are not required to go to pre-dispute arbitration. Those claims may also be brought as a joint, class, or collective action in cases involving workplace sexual harassment and sexual assault disputes.
These restrictions appear to apply to all existing arbitration agreements, even those signed prior to the act’s enactment. As a result, the act may effectively invalidate any current pre-dispute agreement forcing an employee to arbitrate a case related to a sexual harassment or sexual assault dispute, except as to disputes that have already arisen or accrued prior to enactment of the new federal law. The presumption that an arbitration agreement will govern claims of sexual harassment or sexual assault compelling an employee or other alleged victim to pursue those claims in an arbitration forum rather than in court no longer exists. Notably, however, the act includes an exception that a claim may still go to arbitration but only if an employee elects to arbitrate a specific case after the alleged conduct has occurred. Additionally, the act only bars enforcement of pre-dispute arbitration.
Employers who have adopted arbitration agreements and/or class or collective action waivers should update their existing arbitration agreements and waivers to take this new law into account. Furthermore, many states have also begun to legislate this area, including going further by banning more claims from arbitration than just the claims in the federal act. Employers need to be cognizant of the implications of any state laws in the states where they are located.
A waiver of a right to arbitration does not require a showing of prejudice
The Supreme Court recently held that the FAA does not authorize federal courts to create arbitration-specific procedural rules. In doing so, the Supreme Court nixed a prejudice requirement that had been applied by multiple federal circuit courts. The Supreme Court determined that a party’s right to send a case to arbitration does not hinge on whether the delay prejudiced the other party.
Ruling on appeal, the Supreme Court was required to consider an 8th Circuit Court of Appeals decision. The dispute stemmed from a wage and hour claim in which an employee alleged, among other things, that the employer capped paychecks at 80 hours per two-week period, regardless of hours worked. The employee filed a lawsuit in federal court. The employer litigated the case but then moved to compel arbitration. The employee claimed that the employer waived its right to arbitration. The 8th Circuit held that the employee failed to show that the employer prejudiced her by acting inconsistently in invoking its arbitration agreement with her — in this case, waiting months to move to compel arbitration.
In reversing the decision of the 8th Circuit, the Supreme Court held that FAA’s “policy favoring arbitration” did not permit federal courts to add arbitration-specific waiver rules – such as a prejudice requirement. Accordingly, when determining whether a party has waived their right to arbitration, a court should consider the conduct of the party and whether the party knowingly relinquished the right to arbitrate by acting inconsistently with that right.
Going forward, general claims of prejudice will not be a criterion that is considered by the courts when determining if a party has waived their right to arbitration. It is important for employers to be aware of their right to arbitrate, when applicable, and act upon that right timely and appropriately. By lowering the bar to show that employers waived the ability to compel arbitration, this decision may make it easier for some employees to keep class action claims in court and out of private individual proceedings.
Takeaway
As these recent actions show, changes in the field of arbitration are afoot. Employers, who utilize arbitration clauses with their employees or otherwise, need to stay informed and up to date on these changes as they will have significant impacts on the ability to arbitrate and the arbitration of claims brought by employees. It is advisable to consult with experienced legal counsel to make sure that you are aware of all of the applicable federal and state laws, and that your arbitration clauses are in compliance with those laws.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.