President Biden Signs Into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. It Became Effective Immediately on March 3 – Part II
Posted on Categories Arbitration, Arbitration Agreements, Business & Employment, Class Action/Collective Waivers, Feature Article, Fed Arbitration Act, Legislation, NewsTags , , , , , ,

by George H. Friedman, SAA Publisher and Editor-in-Chief

World events caused a bit of a delay, but President Biden on March 3 finally signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. The Act became effective immediately. Here’s an update.

As reported in SAAs 2022-07 (Feb. 24) and -05 (Feb. 10), H.R. 4445 passed the House on February 7 by a bipartisan vote of 335-97, and the Senate approved the bill by voice vote on February 10. As we observed in # 07, his approval was a foregone conclusion, since the President had issued a February 2 statement supporting the legislation. The bill was signed into law at a White House ceremony that included Vice President Harris and former Fox News reporter Gretchen Carlson.

The Basics

Full details on the Act are contained in our recent feature article, but in short: the new law amends the Federal Arbitration Act (“FAA”) to give the employee or class/collective representative the right to invalidate after a dispute arises predispute arbitration agreements (“PDAA”) or class action waivers covering sexual assault or harassment claims (see the House text). Specifically: 1) employees/class reps can opt out of PDAAs and class action waivers in cases involving claims of sexual harassment or assault; 2) arbitrability is for the court, even if there’s a delegation clause; 3) the “cases” and “disputes/claims” ambiguity will lead to problems unless the Act is quickly cleaned up in this regard; 4) FINRA and other ADR institutions will need to address opting out and bifurcation; and 5) the law is effective immediately – March 3 – for: “any dispute or claim that arises or accrues on or after the date of enactment of this Act.”

Prez and Veep: “You Ain’t Seen Nothing Yet” …

The Democrats have introduced over 100 bills in the 117th Congress that in some way, shape or form, would amend the Federal Arbitration Act, other federal statutes, or both to ban predispute arbitration agreements for a class of parties (e.g., consumers) or claims (e.g., statutory rights). See, for example, the Forced Arbitration Injustice Repeal (FAIR) ActH.R. 963, which if enacted would ban mandatory arbitration for almost every conceivable transaction that’s not a business-to-business or union-management matter. In their remarks at the signing ceremony, the President and Vice President made clear that the Act was just the start of an ongoing effort to ban PDAAs in a wider range of disputes, starting with employment. For example, President Biden said (ed: starting at marker 12:10 of the YouTube video):

“I know there’s discussion in Congress about whether forced arbitration clauses should also be banned for other kinds of employment disputes beyond sexual harassment and assault. I think it’s all wrong, and they should be banned.” He added later that Congress “in the coming weeks” would be considering legislation to ban mandatory arbitration of all employment disputes.

Vice President Harris said:

“As I think about the future, our administration will work with Congress on broader forced arbitration legislation to — (applause). And we will do that to also protect the rights of workers in cases of wage theft, racial discrimination, and unfair labor practice ….”

… Such As: Bill Introduced in Senate to Amend Arbitration Parts of Dodd-Frank

The Administration wasn’t kidding about continuing the legislative effort to limit PDAAs in the consumer and employment areas. Within minutes of the bill signing ceremony, Sen. Sherrod Brown (D-OH) introduced S. 3755 -- the Arbitration Fairness for Consumers Act -- described in a Press Release as: “legislation to prohibit banks and other financial institutions from using forced arbitration clauses against consumers who want to seek restitution and justice…. The Arbitration Fairness for Consumers Act bans these abusive practices. The Act amends Title X of the Consumer Financial Protection Act of 2010 to prohibit pre-dispute arbitration agreements and class-action waivers in contracts for consumer financial products or services. Under the Act, such agreements would be neither valid nor enforceable.” The text adds that delegation issues are for the court, “whether the agreement purports to delegate such determinations to an arbitrator.” The bill impacts PDAAs involving “consumers” and “financial products or services” but it’s not entirely clear to us whether this would include securities arbitration agreements. A one-page summary states:

“Banks and other financial institutions force consumers to agree to contracts with arbitration clauses that take away their right to justice in order to access credit bank accounts, credit cards, prepaid cards, student loans, and other essential financial services.”

However, the bill amends Dodd-Frank Title X - Bureau of Consumer Financial Protection. Securities matters are covered by Title IX - Investor Protections and Improvements to the Regulation of Securities.

Déjà Vu All Over Again

Recall that Dodd-Frank section 921 gives the SEC authority to limit or eliminate PDAAs or set conditions for their use, but it has not done so. Section 1028 directs the CFPB to study the use of PDAAs in contracts for consumer financial products and services, to later report to Congress, and to ban, limit or impose conditions on their use if such action “is in the public interest and for the protection of consumers.” Alert readers may recall that the CFPB did indeed issue the required report to Congress and later promulgated a rule banning class action waivers. However, before it became effective, the Final Rule on arbitration was retroactively nullified in November 2017, when President Trump signed into law H.J. Res. 111, a Joint Disapproval and Nullification Resolution (see SAA 2017-41). Congress had exercised its authority under the Congressional Review Act, (“CRA”) 5 USC §§ 801 et seq., which allows that body to legislatively nullify any regulation within 60 legislative/session days of its publication. Under the CRA, the reg cannot be reintroduced without the express permission of Congress.

Cue the Senate Banking Committee

As if on cue, the Senate Banking Committee – chaired by Sen. Brown – on March 8 held a 75-minute hearing, Examining Mandatory Arbitration in Financial Service Products. The speakers, in this order, were (ed: links are to prepared remarks): Paul Bland, Executive Director, Public Justice; Remington A. Gregg, Counsel for Civil Justice and Consumer Rights, Public Citizen; Professor Todd J. Zywicki, George Mason University Foundation Professor of Law at George Mason University Antonin Scalia School of Law; Steven Lehotsky, Lehotsky Keller LLP, on behalf of the U.S. Chamber of Commerce; and Professor Myriam Gilles, Paul R. Verkuil Research Chair and Professor of Law. When we first read that the hearing would be taking place, we were surprised that FINRA, NASAA, PIABA, and/or SIFMA were not represented on the panel. It became clear, however, that the focus was on the Arbitration Fairness for Consumers Act, mandatory arbitration involving consumer financial products and services, and what the CFPB might do about it, and not securities arbitration, FINRA, and SEC oversight. There were no references to either institution, although at the very end (ed: around marker 01:25 of the hearing video, available here), Chairman Brown made a passing reference to having received a letter from NASAA about securities arbitration that he would be putting in the record. As of press time, the letter had not been posted and could not be found on NASAA’s Website. All Democratic Committee members who had questions or comments supported the Act. The only GOP member who spoke, Ranking Member Patrick Toomey (R-PA), opposed it.

An Inaccurate Comment By the VP

At the signing ceremony, Vice President Harris said:

“The legislation the President will sign today will end forced arbitration in all cases of sexual abuse. (Applause.)  And — and almost equally as important, it will apply retroactively — (applause) — invalidating every one of these agreements, no matter when they were entered into.”

With all due respect, that’s not the case. As we pointed out in our past coverage, the new law does not ban predispute arbitration agreements or class action waivers covering sexual assault or harassment claims. The statute instead gives the employee or class/collective representative the right to opt out of PDAAs by invalidating them after a dispute arises (see, e.g., the House text). The President, however, got it right, stating that the new law: “invalidates predispute arbitration agreements that preclude a party from filing a lawsuit in court involving sexual assault or sexual harassment, at the election of the party alleging such conduct” (emphasis added).

(ed: *As our coverage points out, the new law definitely affects securities arbitrations, since the Act amends the FAA. We think the impact at FINRA will be in two main areas: 1) opting out; and 2) intertwining. **The new law raises many questions in our view. For details, see our feature article. ***Does the enactment of the new law mean the dominos will fall with the passage of these other anti-PDAA bills? While the new law clearly gives these bills momentum, we don’t think it translates to large-scale enactments. Why not? We see the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act as one-off, in that it involves a sensitive issue that cuts across party lines. We just don’t sense that with all but one of the other bills – the Investor Choice Act – at least as to garnering the ten Republican Senate votes needed to advance the legislation. ****We will track developments regarding S. 3755; thus far, there is no companion House bill. *****The FINRA Board at its March 9-10 meeting reviewed: "proposed amendments to rules related to arbitration of sexual assault and sexual harassment claims to conform to the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act." )