Congress Takes Aim at Arbitration Agreements, Deductibility of Settlements in Cases of Sexual Harassment

December 08, 2017

While Congress continues to grapple with its own sexual harassment issues, a bipartisan group of legislators has introduced a bill targeting private sector employers that prohibits pre-dispute arbitration agreements from covering any gender discrimination claims, including those regarding compensation, hiring and terminations, promotions, etc.  The "Ending Forced Arbitration of Sexual Harassment Act" would not be retroactive and would not apply to "any arbitration provision in a contract between an employer and a labor organization or between labor organizations."  However, it appears to undercut that exception by stating that "no such arbitration provision shall waive" an employee’s right to seek "judicial enforcement" of claims.  Additionally, the bill would require a judge rather than an arbitrator to determine whether an arbitration agreement is enforceable.  Senator Kirsten Gillibrand (D-NY), who sponsored the legislation, said:  

When a company has a forced arbitration policy, it means that if a worker is sexually harassed or sexually assaulted in the workplace, they are not allowed to go to court over it; instead, they have to go into a secret meeting with their employer and try to work out some kind of deal that really only protects the predator. They are forbidden from talking about what happened, and then they are expected to keep doing their job as if nothing happened to them. No worker should have to put up with such an unfair system.
Sexual harassment cases aside, pre-dispute arbitration agreements have been under attack for several years by liberal Members of Congress, even though arbitration, as an alternative to costly litigation, has been generally favored by Congress and the courts.  As the Association recently argued in a case pending before the U.S. Supreme Court, such an agreement:

...allows both sides to address these disputes in a manner minimizing both the costs and delays associated with traditional litigation, including collective and class action proceedings—with employers often paying virtually all of the costs involved—and is ultimately more conducive to maintaining an ongoing and healthy relationship between the parties.

Meanwhile, the Senate's tax bill removes employer's ability to deduct expenses related to "any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or attorney's fees related to such a settlement or payment."