In March of 2022, the president signed into law an important amendment to the Federal Arbitration Act. The amendment is called the ‘Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act.’ The Federal Arbitration Act, also known as FAA, has been around for a long time (since 1925). It was passed by Congress to promote arbitration over private disputes that pertained to federal law. Under this Act, if parties involved in a dispute agree to arbitrate, then they give up their right to go to court.
Forced Arbitration Criticism
This Act has faced much criticism in the past. Over the last few years, the Act has seen challenges in state courts and legislatures. The newest amendment to this Act is a direct response to the #MeToo movement. This amendment allows employees to circumvent arbitration clauses in their contract and seek other avenues through state or federal court. It also allows those asserting sexual harassment claims to file collectively or through class-action suits.
This change is a historic win for employees not only because it allows for more avenues of justice and addresses issues of workplace sexual harassment, but it is also a step in the right direction of further amending the FAA and curtailing the practice of forcing employees only to seek redress through arbitration, which might help financial advisors going against their broker-dealers in the future.
A good example of this would be a credit card or bank account. If you have one of either, which unsurprisingly 96% of American households do, then you’ve probably unknowingly relinquished your right to pursue certain claims outside of an arbitration setting. Since this service is ubiquitous with modern American life, it’s also the source of potential abuse.
The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act passed this year addressed the root of a serious problem. This act applies to two agreements which are included in many contracts. They are ‘pre-dispute arbitration agreements’ and ‘pre-dispute joint-action waivers.’ Pre-dispute arbitration agreements, as the name implies, is a provision within a contract, usually signed at the onset of an employee-employer or business-client relation, which mandates arbitration over court-action. The other provision, which is referred to as a pre-dispute joint-action waiver, is an agreement in which a party relinquishes the right to seek joint, class, or collective legal avenues. Seeing these provisions struck down from sexaul harassment claims is a big step in the right direction.
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