Reports of Arbitration's Death Are Greatly Exaggerated

February 9th, 2022

About 30% of our clients ask us to put mandatory arbitration clauses in their employment contracts. We do so willingly because arbitration is a win-win for everyone. It costs less than traditional litigation, the scope of discovery is usually more limited, disputes are resolved quicker, and there is more confidentiality through arbitration.

Drafting an enforceable arbitration provision, however, just got harder. On March 3, 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 ("Act"). This is one of the first new federal employment laws in over a decade. Here is what the Act does:

  • The Act gives an employee who is asserting a sexual harassment or sexual assault claim a choice to invalidate an arbitration clause they may have in their employment contract and go straight to court to adjudicate their sexual harassment or sexual assault claim.
  • The Act invalidates class action or collective action waivers with respect to sexual harassment or sexual assault claims that arose or accrue after March 3, 2022.
  • The Act says that courts, not arbitrators, are the decision-makers as to whether a claim is subject to arbitration or may be litigated in court.

Drafting Tips

There's an old Chicago saying that arises from the commodity pits: "Pigs get fed, hogs get slaughtered." Employers who use arbitration clauses in their employment agreements can still do so. Do not be too greedy. For example, from now on:

  • Every arbitration agreement should have a "carve-out" or an exemption for employee claims related to sexual assault or sexual harassment. This language should be clear and conspicuous, so a later fact finder and your employee knows that it is the employer's intent to comply with the Act.
  • Arbitration agreements must not be one-sided procedurally. Both the employee and the employer should have a say in choosing the venue for the arbitration as well as the arbitrator. A recent decision from the Seventh Circuit, Campbell v. Keagle Inc. decided on March 4, 2022, is a stark reminder of the difficulties that an employer can encounter if they overreach and draft an unfair arbitration agreement.
  • Finally, attorneys fees and costs associated with arbitration should be handled the same way they are in the courts. In the Campbell decision, the employer tried to shift all of the costs on the employee even if the employer lost. This offended the trial judge and he wound up holding the entire agreement unenforceable and unconscionable. The employer had to go up to the Seventh Circuit Court of Appeals to reinstate its arbitration provision.

Employer Takeaways

Ignore those "nattering nabobs of negativism" who are predicting that arbitration is dead or no longer a good idea. The federal courts love arbitration because it lightens their dockets. Despite commentators predicting that discrimination, wage theft, and unfair labor practice claims will soon not be arbitrable, the window is closing on future federal employment laws as the 2022 elections approach. Arbitration of employment claims is not going away. But one-sided provisions are.

Approach your firm's arbitration provision the same way we recommend you approach its restrictive covenant provision, with humility and fairness. If your business employs an arbitration provision that gives both sides an equal chance to choose the arbitrator, the venue, and the costs are equal, then your arbitration provision will be enforced. Hopefully, you will never have to use it.

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