New legislation is changing the way employers resolve claims.

On March 3rd, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. A culmination of the MeToo movement’s efforts, this law amends the Federal Arbitration Act to prohibit mandatory pre-dispute arbitration agreements for sexual assault and sexual harassment claims.

However, many claims other than sexual assault and harassment cases can be pushed to arbitration. The Blank Rome team analyzes the various benefits of arbitration, including confidential proceedings, cost savings, and the class waiver to protect from class actions.

Another act that may affect employers in the future is the FAIR Act. This act would prohibit all forms of mandatory employment arbitration. While the FAIR Act likely lacks the bipartisan support to pass the Senate, employers should monitor this legislation for developments.

In this episode of BR @ Work, host Will Anthony talks with Alix Udelson, Associate at Blank Rome, and Ted Meyer, Partner at Blank Rome. They examine the new arbitration agreement changes, legislation in the pipeline, and address what employers can do to ensure that their policies and procedures meet contemporary standards.

🎙️ Meet Your Host 🎙️

Name: William J. Anthony

What he does: As a Partner at Blank Rome, Will’s labor and employment practice focuses on class, collective, and multi-party actions. He also provides training on management skills, discrimination, harassment, and other labor topics nationwide. 

Company: Blank Rome LLP

Words of wisdom: “Let's all listen a little bit more, judge a little less, and maybe do something good for others every day.”

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🎙️ Featured Guests 🎙️

Name: Alix Udelson

What she does: Alix is an Associate in Blank Rome’s Labor and Employment sector. She represents and counsels employers across a range of matters, including discrimination and harassment, retaliation, wage and hour, failure to hire, and wrongful termination. Alix routinely devises and reviews employment guidelines and policies and works to address an array of workplace issues.

Company: Blank Rome LLP

Words of wisdom: “Every so often we get these laws, [and] a good reminder is to re-review policies to begin with.”

Connect: LinkedIn

Name: Ted Meyer

What he does: Ted is a Partner in Blank Rome’s Labor and Employment sector. He has over 25 years of experience representing employers in labor and employment matters, with a background in home building, technology, financial, energy, oil and gas, and mortgage and title industries. Ted counsels national employers, represents large and small companies in litigation proceedings, and provides representation on disputes with departing executives and managers.

Company: Blank Rome LLP

Words of wisdom: “We've seen these things flip back and forth over the years with political administrations as the winds change. So, who knows where we might be in another two, or four, or six years.”

Connect: LinkedIn

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The insights and views presented in BR @ Work are for general information purposes only and should not be taken as legal advice for any individual case or situation. The information presented is not a substitute for consulting with an attorney, nor does tuning in to this podcast constitute an attorney-client relationship of any kind.

From Blank Rome, you're listening to BR at Work. The labor and employment podcast for in-house counsel and HR executives. We invite you to join us as we explore relevant topics at the intersection of law, business, and current events, to help you answer questions, solve problems, defend claims, and attract and retain a talented engaged workforce. Let's get to work.

Hello and welcome to BR at Work. A podcast focused on helping organizations get the most out of their workforces by providing thoughtful, strategic, and compliance strategy for employers. My name is Will Anthony with Blank Rome's New York office in our labor and employment practice. And today, I'm joined by two of our terrific labor and employment lawyers from our Houston office, Alix Udelson and Ted Meyer. Today, Alix, and Ted, and I, are going to discuss the current state of arbitration agreements. While none of what we discussed is intended to provide legal advice on your particular issues, we do hope that you will find all of the information very useful, practical, and give you some great takeaways. So, let's jump right into this very timely topic.

Alix, you and I met when you were an in-house counsel at a national hospitality group. And I was your outside counsel seeking to compel single plaintiff arbitration in a collective action filed in New York, which we did successfully at the District Court level and at the Second Circuit. So, I know that you have great experience in dealing with arbitration agreements as both an in-house lawyer and an outside counsel. And I also know you recently wrote a great article on where things stand. So, let's get started with you. Can you explain to everyone where are we with arbitration agreements right now?

Yeah. So, a lot has changed over the past month. On March 3rd, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. This amends the Federal Arbitration Act to prohibit mandatory pre-dispute arbitration agreements for sexual assault and sexual harassment claims. This is the culmination of many years of efforts for by the MeToo movement proponent to put an end to what they view as attempts to silence victims of sexual assault and sexual harassment who were before then or before this required to go to confidential arbitration instead of litigating their claims in court.

So, that is now, employers no longer can make employment contingent an employee's agreement to submit to arbitration of those claims. So, again, a huge change. I also wanted to talk about the retroactive effect of the law because I've received a lot of questions about that. And I've also read conflicting information about it too. The Act is retroactive back to the date that a claim accrued. If a claim accrued on or after the date that the Act went into effect, then it is affected by this law. If it accrued before the Act came into effect, then it would not be subject to this law.

That's a great point. So, Ted, as with every piece of legislation, we seem to find ourselves in front of it as employment lawyers, there's always some unintended or potentially unintended consequences. And one of the questions we've been facing lately is what do we do with companion claims? So, let's say someone brings a sexual harassment, and a wage and hour collective action. How do we handle that with respect to arbitration?

Yeah. Good question, Will. I have been advising employers for years now to have pre-dispute arbitration agreements for employment claims for a variety of reasons, including that the proceedings could remain confidential, that there are cost savings associated with arbitration. And then as the courts have affirmed most recently, we have the benefit of class waiver, which is essentially a requirement that all claims must proceed on an individualized basis.

We still like all these components of arbitration. So, that if there are companion claims, that is claims that go beyond sexual assault and sexual harassment, we still believe in general, it's going to be better to try and compel those claims to arbitration even if the company has to proceed on two tracks. One involving the sexual assault and harassment claims, and the other involving the companion claim. In particular, the class waiver is designed to present or to prevent class actions. And we still want that advantage. And so, we still would like to continue to push any claims other than sexual assault or sexual harassment into arbitration to avoid the class actions and collective actions.

That makes sense. And have you ever given any thought to also in the arbitration agreements, having a standalone class waiver? That is even if the matter is not maintainable in arbitration, that the individual still waves the right to proceed on a class collective multi-plaintiff basis.

Yes. That is a very creative approach to this issue. And I'm in favor of that. I think state laws may vary on the enforceability of these class waivers outside arbitration. That is class waivers that are in a standalone employment agreement. But I still think it's a good idea. And I still think it's an option that employers may want to have when faced with this situation.

Yeah, certainly because we have seen plenty of instances where class-based claims are based upon sexual harassment or sexual assault, and the like. So, and we know that other claims are going to be carved out of arbitration, or we suspect certain ones will. But along those same lines, Ted, going back to maybe the days that we used to draft agreements, pre-FAA becoming the employer's favorite statute, what about jury waivers? Have you ever included those in agreements?

Yes. I have used jury waivers. And I think they are helpful and enforceable in most cases. And in particular, with sexual assault and sexual harassment claims, those are claims that the company may very well want the option of not having a jury. Juries can get inflamed in these cases, and come back with larger awards generally than courts, judges, or arbitrators. And so, another approach to address this is the use of jury waivers in employment agreements.

So, Alix coming back to you, what Ted just said is interesting because now employers do need to make a choice. Do they want to litigate an individual's claim in two forums? And after all, most employers adopted arbitration agreements with the thought of it's going to cost us a little less, it's going to be quicker, more efficient to stay in arbitration rather than in court. But now, in a situation where we have claims that are not arbitrable, we may have to decide to litigate in more than one forum. So, how do we handle what I'm going to call potentially frivolous or attempts to skirt arbitration by adding sexual assault or sexual harassment claims?

Yep. I think that the prospect of that is it's a real possibility. And something that I know several clients have expressed concern with, to me at least. And we've had some very creative ideas floated around. One is, well, what if we incorporate some sort of attorney's fees mechanism to enable us to recoup our attorney's fees, if it turns out that a plaintiff has filed a frivolous sexual harassment or sexual assault claim just to evade arbitration requirements. And what they've asked for is can we essentially contract for a lower Rule 11 standard?

And again, very creative, clever idea. We did a lot of research on that and determined that probably would not be a good idea due to unconscionability concerns. And we think that just generally speaking, the better path is to leave it to the default federal rules in place that already exist to dispose of frivolous claims. I mean, there are natural payments for a resolution of those so that we wouldn't be having to really litigate frivolous claims. And there are potential avenues for getting attorney fees in those situations too under Rule 11 as it exists.

So, Ted, going back to you. Employers now should, and I've been saying this, and I think the three of us did a program last year where we said this, if you don't have an arbitration agreement, you should be at least considering it every once in a while. The advantage is disadvantages. If you do have one, I think now, is just another point in time where you should revisit them. And what is your advice to employers that have these agreements, and they take them out now, they look at them? What should they be thinking about?

Well, I think we need to go back and look at our arbitration agreements. And make sure that we have a carve out in the arbitration agreement that makes it clear that the agreement does not apply to claims that cannot be arbitrated by applicable law. We want to be able to go a court that we know about the law, that we've addressed it in the agreement. And that we're just aware of what's going on. And we are trying to comply with the law in the way we drafted the agreement.

The question is though, with this new change on sexual assault and sexual harassment claims, do we go into the agreement and specifically say that those claims may not be arbitrated? And that's certainly one approach to doing this. I fall on the side of staying with the general exception to the effect that the ADR clause does not apply to claims that cannot be arbitrated under applicable law.

And the reason for that is I want to preserve all the defenses we may have to claims that are alleged along with sexual assault and sexual harassment, like general gender discrimination or equal pay based on gender. I want to make sure that we don't unwittingly by the way that we draft these agree to have to go to court on claims beyond those that are carved out by the new law. So, I'm generally advising clients to use a general carve out that says that the ADR clause does not apply to claims that cannot be arbitrated under applicable law.

That makes a lot of sense. And to a degree, I think that employers really should use this as an opportunity to take a look at how they even get to the point of being sued or having a claim brought against them for sexual assault or sexual harassment. So, Alix, with that in mind, any thoughts on what employers should be thinking about to go back to the days where we really used to focus on how do we avoid the courthouse in the first place?

Yeah. I feel like every so often we get these laws, a good reminder is to re-review policies to begin with. And I think that this is definitely one of those laws. I think that at the very least, employers should be going back and looking at how they're investigating claims, any complaint, not necessarily sexual harassment and sexual assault. I mean, employee grievance should be taken seriously. But employers should look at how they're investigating those to begin with.

And I think we've discussed before, a lot of employers tend to view investigations into these complaints, employee grievances, as more of an internal HR function. And that certainly can be appropriate. But in many cases, I think it's important to especially now, consider the optics of how an investigation is going to unfold, especially given the potential for a jury now looking at how these claims have been dealt with by employers. And so, I think it's a really good time to consider enhancing your third party investigators to help formulate a more formal and I guess a cleaner approach to the investigations.

I think that's a great point. And I have been reading some cases over the last several years, especially in the sexual harassment, sexual assault context. And it seems that more often than not, the claims are investigated internally. And there are attacks on the way that investigation was conducted, who conducted it, the pressure that individuals may have felt to find in a certain way. So, I do think it's a great point that you make that maybe it's time to give some thought to should we be using an outside third party to investigate the complaints, even if not in all circumstances, in some of the circumstances.

So, I think that is a great point. And I think in addition to reviewing, taking another look at your arbitration program. And that this concept of making sure that before you go to court, you're in a pretty good situation to begin with. So, Ted, any final thoughts on arbitration?

Well, it's not the end of the world here. The courts have historically been very willing to compel cases to arbitration. We expect them to continue to do so in the majority of employment claims. With the exception, of course, that they're no longer going to be able to send sexual harassment and sexual assault claims to arbitration. As I said before though, this said, we don't think this new law is going to cover other gender discrimination type claims, like equal pay or generic gender discrimination claims.

So, we believe we still have a strong case to keep those cases in arbitration. And even for the sexual harassment and assault claims that do not remain in arbitration, but go to court. We believe we'll still get the benefit of summary judgment. And the other things that are actually more beneficial if we're in court instead of arbitration. And so, it's not the end of the world. And again, we've seen these things flip back and forth over the years with political administrations as the winds change. So, who knows where we might be in another two, or four, or six, years on these. We may be back where we were before.

Right. It's a good point. And Alix, there is some other legislation kicking around in Congress, correct, to more broadly prohibit arbitration agreements in the employment context?

Yeah. So, when President Biden was running, a major component of his platform was the FAIR Act, which would actually prohibit all forms of employment arbitration or mandatory employment arbitration rather. That actually was recently passed in the Congress. But it was not, there was no bipartisan support for it. I don't think that this is going to be passed by the Senate anytime soon.

And so, it'll be interesting to see how that develops. But I mean, we've been talking about how we really think that this is probably what was just passed was probably a compromise. And it's going to take some time for any broader limitation to work its way to fruition, if it ever comes to that.

Okay. Well, thank you all for listening to today's BR at Work podcast. Alix and Ted, thank you very much for some terrific thoughts, and insights, and really practical advice for employers to consider. We hope that you all learn strategies that will help you achieve your business objectives through having an engaged, motivated, and energized workforce.

We know your jobs are challenging. And we appreciate all that you do for your organizations. And if you have any thoughts for topics, presenters, or just ways to improve our podcast, please reach out to me at william.anthony@blankrome.com. And we'll take everything that you give us into consideration. So, we want to close our podcast on a positive note. So, my thought for today is let's all listen a little bit more, judge a little less, and maybe do something good for others every day. Alix, any positive thoughts you want to chime in with?

That's a good one. I just [crosstalk 00:18:10].

All right. Well, thank you both very much. This was a real pleasure. And thanks everyone for listening.

We appreciate you joining us for this episode of BR at Work. To continue the conversation with a team of attorneys that understand your business, your needs and priorities, and the unique risks you face, visit us at blankrome.com. The insights and views presented in BR at Work are for general information purposes only, and should not be taken as legal advice for any individual case or situation. The information presented is not a substitute for consulting with an attorney, nor does tuning into this podcast constitute an attorney-client relationship of any kind.