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Federal bill addresses arbitration clauses in employment contracts

On Behalf of | Feb 18, 2022 | Employment and Labor Law

A great many companies in the United States rely on the use of mandatory arbitration to resolve employment disputes. By including an arbitration clause in the contracts of employees, companies can address employment disputes in a cost-controlled and private manner, protecting the company from the expenses of courtroom litigation and the negative reputation that could come with it.

After the passage of a recent federal bill, forced arbitration will no longer be an option for employers – at least when it comes to employee allegations of sexual harassment and sexual assault. Earlier this month, legislators passed the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act” with considerable bipartisan support.

Legislation gives choice to employees, not employers

When employees come forward with allegations of workplace sexual harassment or sexual assault, companies can no longer require the dispute to be resolved through arbitration. The employee can choose arbitration if they want to use that method, but they also have the option of taking their case to court.

While many employment disputes focus on individual grievances, proponents of the bill say that sexual harassment and assault allegations are different. By keeping them secret through forced arbitration, companies may be protecting harassers and abusers, who could then go on to harass and abuse others. Over the past five years or so, the national news has been filled with high-profile examples of this problem.

Employers should know that these changes are retroactive

One of the most notable aspects of this bill is that it applies retroactively to existing forced arbitration clauses. If you run a business that utilizes arbitration clauses, any disputes related to sexual assault or harassment will soon be exempt, giving employees the right to take the case to court if they wish to do so.

While this simplifies company policies by making all employees subject to the same arbitration rules, it also exposes some employers to the expenses and negative press associated with litigation. As such, some businesses will need to consult with legal counsel as soon as possible.

One of the bill’s sponsors noted that about 60 million Americans have forced arbitration clauses in their contracts, so the impact of this bill will likely be widespread. Only time will tell how much this change could impact the legal landscape for employment litigation.