An appellate court ruling earlier this month denying Chipotle’s effort to compel arbitration of a sexual harassment claim shines a spotlight on the kinds of issues in-house counsel will face since the federal government in 2022 passed a law prohibiting companies from using mandatory arbitration in cases of sexual harassment.
The Chipotle ruling shows that, by singling out one type of harassment over others, the government is opening a Pandora’s box that it could find hard to close.
“It’s a bit dangerous to say one category of harassment is worse than another type of harassment,” Duane Morris attorney Jonathan Segal told Legal Dive. “Partway inclusion also means exclusion.”
The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, championed by former Fox News anchor Gretchen Carlson and signed into law by President Biden, struck a blow against mandatory arbitration agreements.
The law invalidates arbitration agreements that preclude a party from filing in court a lawsuit alleging sexual assault or sexual harassment.
“Forced arbitration isn’t court,” Biden said after signing the legislation into law. “In fact, forced arbitration prevents survivors from going to court. And under forced arbitration, proceedings are conducted in secret, often by arbitrators selected and paid for by the employer.”
But what about other types of harassment? “What the statute doesn’t say is what happens if you’re the victim of racial harassment or disability harassment in the workplace or age discrimination?” said Anthony Oncidi, head of the labor and employment group in the Los Angeles office of Proskauer Rose.
Oncidi fears the Act has opened a huge door by which many employees can avoid arbitration entirely, and suggests it will increase the cost and time of litigating cases nationwide.
“If we say sexual harassment victims don’t have to go to arbitration, we’re saying something is wrong with arbitration, and I disagree with that,” said Oncidi. “Arbitration can be fair for both sides.”
But Indiana University law school professor Deborah Widiss said the fact that many employees have to sign these agreements as a condition of employment is problematic, especially with more than 60 million workers subject to them.
“There’s a growing body of evidence that being forced into arbitration is not good for workers. I hope [the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act] is just the first step in addressing the broader problem,” said Widiss, who has litigated cases on behalf of domestic violence victims in her career.
First-of-its-kind ruling
Earlier this month, the 8th Circuit became the first federal appellate court to apply the Act in denying Chipotle’s motion to compel arbitration in the case of an employee who claimed that a co-worker sexually assaulted her in the restroom of the restaurant where they worked.
Chipotle claimed that since the alleged assault occurred before the law’s March 3, 2022, effective date, its arbitration agreement with the employee still applied. But the 8th Circuit panel disagreed. It found that the dispute did not arise until July 26, 2022, when the plaintiff first filed a claim in Minnesota state court. As a result, the company could not keep the case out of the courtroom.
“The 8th Circuit’s approach seems reasonable,” said Widiss in noting that if Chipotle had responded quickly, there would have been no dispute at all.
But according to Oncidi, the ruling doesn’t fully make sense. “It does strike me as a little unusual that a statute will affect activity before its effective date as long as they’ve not yet filed a lawsuit,” he said. “A lawsuit being filed is usually the last stop on the train. This sweeps in lots of activity that shouldn’t be covered.”
Oncidi downplays the overall significance, though, noting that it will not be long before any workplace misconduct will have occurred after the Act’s March 2022 effective date.
Advice for companies
In the post-George Floyd era, some employers have stopped requiring arbitration agreements for racial harassment claims. But Segal sees that as a problem.
“My general advice would be if you believe in arbitration, I would apply it to all claims unless the law says there is a specific carve out [as with the Ending Forced Arbitration of Sexual Assault and Harassment Act],” said Segal.
“From a DEI perspective, you could say is there really a reason to treat racial or religious harassment differently?”
Oncidi goes further. “I don’t understand what an employer thinks it’s getting by giving up its rights to arbitration unless there’s some PR advantage, but that’s really short-lived,” he said.
As an example of the risks, Oncidi points to a $137 million jury verdict in a racial discrimination case against Tesla that later settled.
Another issue raised by the 2022 law is what happens when sexual harassment claims intersect with other types of allegations. For instance, it is not uncommon for an employee to file a lawsuit including multiple claims. So what happens in that type of case?
“There is not a clear answer yet,” said Segal. “If you’re the employer you don’t want one claim in court and one in arbitration.” But Segal added that if the claim is entirely unrelated to sexual harassment, as with a wage-and-hour claim, there is no reason not to separate the claims and push wage-and-hour to arbitration with sexual harassment in court.
Widiss countered, though, that there could still be a real connection that would enable all of the claims to be decided in court. “If an employee refuses a manager’s sexual advances and suddenly there is no overtime, then that’s clearly intertwined,” she said, and the Fair Labor Standards Act claim could go forward in court. The same could hold true with a whistleblower claim.
On the horizon, Oncidi predicts there is no question more legislative proposals will be coming that would extend the sexual assault and sexual harassment arbitration ban to age, race and other contexts. Pointing to the November election, he said, “If Harris wins and the Democrats flip the House, there will be further efforts to outlaw [mandatory] arbitration.”