Congress Amends Federal Arbitration Act

California’s Legislature has repeatedly attempted to undermine the Federal Arbitration Act (FAA), which is titled “The United States Arbitration Act, codified at 9 United States Code (USC) Sections 1 – 16, which was enacted by Public Law 68–401, 43 Stat. 883 on February 12, 1925. The California business community has long argued that the state’s legislative efforts are preempted by the FAA and only Congress can act to limit the application of arbitration in legal disputes.

Now, Congress has done so in an effort to address the #MeToo Movement. Both the U.S. House of Representatives and the U.S. Congress have passed, and President Biden is expected to sign shortly, HR 4445. This Congressional bill will amend Title 9 of the US Code and is titled the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021”.

HR 4445 amends Title 9 by adding Section 2 (“Predispute Arbitration of Disputes Involving Sexual Assault and Sexual Harassment”). Chapter 4 (“Arbitration of Disputes Involving Sexual Assault and Sexual Harassment”) is added and contains Section 401 – Definitions – and Section 402 – No validity or enforceability.

Section 401 provides the following definitions:

“Predispute Arbitration Agreement” which means any agreement to arbitrate a dispute that had not yet arisen at the time of the making of the agreement.

“Predispute Joint-Action Waiver” which means an agreement, whether or not part of a predispute arbitration agreement, that would prohibit, or waive the right of, one of the parties to the agreement to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum, concerning a dispute that has not yet arisen at the time of the making of the agreement.

“Sexual Assault Dispute” which means a dispute involving a nonconsensual sexual act or sexual contact, as such terms are defined in section 2246 of title 18 or similar applicable Tribal or State law, including when the victim lacks capacity to consent.

“Sexual Harassment Dispute” which means a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.

Section 402(a) provides that, “at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.”

In addition, Section 402(b) states that the applicability of this chapter to an arbitration agreement and its validity and enforceability must “be determined by a court, rather than an arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement, and irrespective of whether the agreement purports to delegate such determinations to an arbitrator.”

Finally, HR 4445 specifies that it applies “with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act.” Again, President Biden is expected to sign the bill shortly.

As a result of this Congressional action, predispute arbitration agreements cannot be enforced if they involve claims of sexual assault or sexual harassment, regardless of whether the lawsuit is brought under federal, state, or tribal law. Nonetheless, all other labor and employment disputes remain subject to FAA preemption and states such as California are preempted from enacting any contrary laws.