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Arbitration ban expected to increase harassment dispute costs


Federal legislation forbidding mandatory arbitration in sexual harassment and assault cases will lead to higher legal costs and possibly higher employment practices liability rates, experts say.

H.R. 4445, the Ending Forced Arbitrations Sexual Assault and Sexual Harassment Act of 2021, passed Congress on bipartisan votes last month and is expected to be signed by President Joe Biden.

The measure would amend the Federal Arbitration Act and may create the complication of two-track litigation, where sexual assault and harassment charges are heard by a court and other charges in the same case are arbitrated.

While most employers do not require arbitration, those that do have such policies should review and revise them, experts say.

The measure forbids pre-dispute arbitration agreements in sexual harassment and assault cases and leaves it up to a judge to determine if it is applicable.

The original bill, which experts say resulted from the #MeToo movement, was more broadly worded to include other areas of employment litigation but was amended to gain bipartisan support.

The White House has said it would like to expand the mandatory arbitration ban beyond sexual assault and harassment claims, but such a move likely would not gain bipartisan support, observers say.

Over time, the measure will likely increase claims severity and drive higher employment practices liability insurance rates, said Tom Hams, Chicago-based managing director and national EPL practice leader at Aon PLC.

The change in the law likely won’t lead to higher settlement costs, but it will significantly increase defense costs, said Jason Binette, Windsor, Connecticut-based EPL product manager for AmTrust Financial Services Inc.

Robert S. Gilmore, a partner with Kohrman Jackson & Krantz in Cleveland, said the measure counters U.S. Supreme Court rulings in favor of mandatory arbitration, which effectively restrict employees’ ability to file class-action lawsuits.

The court’s 2018 ruling in Epic Systems Corp. v. Lewis, for instance, reaffirmed that the Federal Arbitration Act requires courts to enforce agreements to arbitrate according to their terms.

“There will be an uptick in the sexual harassment types of cases that will be filed, because plaintiff attorneys will know they will be able to succeed in having those litigated in court,” and before a jury, said Emily T. Patajo, a member of Epstein Becker & Green P.C. in Los Angeles.

Employers fear potential reputational damage when disputes are heard in court rather than private arbitration, said Jacqueline K. Siegel, a partner with Goldberg Segalla in New York.

“It creates settlement leverage for the employees because these sexual harassment cases can now proceed to court, litigation costs increase and there is the risk of having to deal with a jury, as opposed to a private arbitrator,” she said.

“A lot of employers have relied on arbitration clauses as a way to manage their risk” and this impacts their ability to do so, but “certainly from a social perspective, it seems positive that a lot of these details of sexual harassment cases would not be buried in arbitration,” said Jack Blum, a shareholder with Polsinelli LLP in Washington, who represents employers.

Plaintiff attorney Andrew Melzer, a partner with Sanford Heisler Sharp LLP in New York, said, “This is an important and long-overdue development. Arbitration has really been manipulated to deny workers and other people their rights and remedies and to shield companies from accountability.”

Many experts say arbitration is not necessarily less costly than litigation.

“It’s not the fast, speedy and efficient process that it was initially envisioned to be,” said Laura Lawless, a partner with Squire Patton Boggs in Phoenix.

There has already been a trend away from arbitration because of costs, said Kate Sawma, a Chicago-based EPL claims consultant with Woodruff Sawyer & Co.

Arbitration is not the panacea people thought it would be years ago, said David J. Woolf, a partner with Faegre Drinker Biddle & Reath LLP in Philadelphia, who said it has started to look more like regular employment litigation, involving discovery, for instance.

Ms. Sawma said the legislation could be a precursor to attempts to prohibit nondisclosure and confidentiality agreements associated with settlement.

Ms. Siegel said that while she does not anticipate Congress will be able to pass bipartisan legislation forbidding mandatory arbitration on other issues, nondisclosure agreements that cover sexual harassment seem to be an issue on which both sides see “eye to eye.”