Viewed as a risk mitigation tool, arbitration clauses are included in employment contracts and policies to route employer/employee disputes to a private forum and outside of the courthouse. Employers are attracted to such clauses because they are believed to be cost-effective and a confidential resolution of claims.

However, as part of the #MeToo movement, such clauses are scrutinized, suggesting they tip the playing field in an employer’s favor. Fueled by Fox News’ highly publicized sex harassment case filed by former anchor Gretchen Carlson, Congress passed a bill on February 10, 2022, that invalidates employer/employee agreements for sex assault and sex harassment cases. President Biden is expected to sign the bill into law soon.

The soon-to-be-law stops existing clauses whether they are in employee contracts or policies. It will not affect disputes currently in arbitration but will apply future-forward. Further, the law contains an employee choice provision wherein an employee may elect arbitration if they are drawn towards a more private forum, but the employee may not be forced into arbitration or bound by an agreement.

Some employers, like those in Iowa, are accustomed to these limitations. Iowa state law already prohibits arbitration in any employment agreement. However, Iowa employers involved in interstate commerce were historically able to revive arbitration agreements under federal law. In fact, it was often said that federal law favors both arbitration of disputes and the enforcement of arbitration agreements. This is no longer true. Federal law now rebukes arbitration clauses for sex assault and sex harassment. This federal law about-face will have the greatest impact on multi-state employers and healthcare providers who had the strongest argument for arbitration under federal law. These arguments are now invalid for claims involving sex assault and sex harassment.

While the bill does not reference other types of employer/employee disputes like gender discrimination, race, religion, sexual orientation, gender identity or pregnancy, one has to wonder if the justification and arguments that commanded bipartisan support will stay limited to sex assault and sex harassment. Employers should pay careful attention as the scope may expand either through additional legislation or court decisions.

Employers who retain arbitration clauses for disputes not covered under this new bill should expect to see more sex harassment claims. The presence of this claim may provide an employee an avenue out of arbitration, even if that is not the primary thrust of their dispute.

The bottom line is that sex harassment is not part of any employer’s business model. It is contrary to the will (and usually, the knowledge) of management. Thus, while some view this legislative as anti-business interests, the better framing is to avoid disputes through sound policies. Employers can set the culture of “no tolerance,” create awareness and access for concerned employees, and be prepared to take swift remedial action when necessary.

The Dentons Davis Brown Labor and Employment Team sees the big picture and is ready to be a resource for your team to update your processes and build compliance for these important legal issues.