Why new law banning forced arbitration on harassment/assault claims will impact companies in big way

Lindabury’s Connelly: Yes, serial harassers will be exposed (and that’s good thing), but expect flood of cases (both legitimate and illegitimate)

Kathleen Connelly. (Lindabury, McCormick, Estabrook & Cooper)

Bipartisan legislation barring the use of forced arbitration to address sexual assault and harassment claims in the workplace was sent to President Joe Biden on Thursday. He has vowed to quickly sign the bill into law.

The measure, which is aimed at ending a secretive practice often used to shield perpetrators from public accountability, is a big deal for employers. After all, it is estimated that 55-60 million employees currently are covered by these agreements.

Now, if one of those employees has a claim of sexual harassment or sexual assault against a company it accuses of failing to protect them from a colleague, they can take that case to court, where the company:

  • Is more likely to lose the case;
  • Is more likely to be ordered to pay a larger settlement;
  • Is almost certain to suffer great reputational damage in the court of public opinion.

Kathleen Connelly, a partner at Lindabury, McCormick, Estabrook & Cooper, where she serves as the co-chair of the firm’s Labor and Employment Practice Group and is recognized as one of the top employment law attorneys in the state, said those three items are just the beginning.

Connelly points out the lawyers for employees who have cases that still are subject to arbitration likely will search to find any type of harassment claim to add to the suit — thus pushing the entire case to open court.

Even worse, she expects plenty will troll employers — creating illegitimate claims of harassment in an effort to get a quick settlement from an employer that wants to avoid any mention of such a suit, whether it feels it is legitimate or not.

“This is a game-changer in so many ways,” she said.

ROI-NJ talked with Connolly to break down what this new law will mean for employers in New Jersey. Here’s a look at the conversation:

ROI-NJ: Give us the background here. The Federal Arbitration Act was enacted in 1925 — why is there a push to change it now?

Kathleen Connolly: The Supreme Court, quite a few years ago, sanctioned the enforcement of the Federal Arbitration Act in employment cases. That was the playing field that we were dealing with for many years.

But, with the advent of the #metoo movement, there’s been a lot of pushback on arbitration of sexual harassment claims, because the arbitration forum is a vehicle for harassers to be shielded. It shuts down the ability to shine the light on harassers and the companies who protect them because arbitration is a secret proceeding: Nobody ever knows about it and the harasser just continues to do it and doesn’t face the public eye like he or she would if we were in a court of law.

This legislation is an outgrowth of that concern.

ROI: To whom will it apply? Can those who have previously alleged harassment or assault now get their day in court? Should those who have not filed any claim on a past incident bring it forward now?

KC: This statute is only going to apply prospectively. It’s not going to help claims that already arose prior to the statute. For anything that’s transpired already, you will have to use arbitration.

ROI: President Biden may sign the bill as soon as next week. What advice will you be giving your clients for when this goes into effect?

KC: I will first advise them to see what their arbitration agreements say and that, perhaps, in every agreement going forward, they should consider expressly noting the carve-out for sexual harassment and sexual assault claims. I think you have to be a little open about it.

I’m not in the business of having arbitration agreements that are unenforceable. I think you should have full disclosure. I think you should expressly put into these agreements that these kinds of claims will not be subjected to the arbitration agreement.

ROI: That’s easy enough. Tell us about the more difficult things that may be coming?

KC: I’m going to put them on notice that we’re probably going to see a lot more harassment allegations.

Think of this through the eyes of a plaintiff’s attorney. Let’s say you have a traditional employment claim against a company, perhaps wrongful termination on the basis of age or race, and you know you’re up against an arbitration clause. And, remember, in most of these cases, there are multiple counts.

This is going to incentivize plaintiff’s attorneys to find any harassment claim they can add, just to get the entire claim out from under an arbitration clause.

ROI: Why is getting more employment cases into court so important to attorneys for plaintiffs?

KC: Lawyers for plaintiffs not only feel they are going to get a bigger settlement in open court than in arbitration, they know being in open court increases their chances of getting a favorable decision because they are before a jury, not an arbitrator — and juries don’t always follow the law, they follow heartstrings.

ROI: You mentioned trolling before. Talk about that impact?

KC: There’s going to be a lot more of it, especially against bigger companies, which have bigger exposure. Having this in the papers — and the reputational and brand damage it could case — could be the biggest hit employers take.

ROI: Even if the charges are trumped up and unwarranted?

KC: Absolutely. For as many legitimate claims as there are, there are just as many illegitimate claims out there. This is going to make it a lot more difficult for an employer to defend an illegitimate claim because the stakes are so high, both in the press and the risk of a jury. So, they really have to think twice, maybe three times, before going to battle and defending against a claim.

ROI: Of course, let’s be clear: This isn’t all bad. If it helps expose companies that have been giving a blind eye to those who have been harassing and/or assaulting others, that’s a good thing. A great thing, right?

KC: Absolutely. And we’ve already seen, as a result of just the #metoo movement, a lot less tolerance for management to allow people to get away with these behaviors in the workplace. This will only put a finer point on that.

Historically, there were a lot of repeat offenders out there who never got this light shone upon their egregious conduct. And companies would just continually pay out hush money and the conduct would continue. This is hopefully going to throw a halt to all of that.