Bill Bars Forced Arbitration in Sexual-Assault, Harassment Claims

Congress has passed legislation to ban mandatory arbitration clauses for cases involving allegations of sexual harassment or assault. With the Senate having passed it yesterday, the bill, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFASASHA), will now go to President Biden, who is expected to sign it into law.

EFASASHA will invalidate most contractual provisions requiring the arbitration of claims alleging sexual harassment or sexual assault. Once in effect, EFASASHA will apply to all pre-dispute arbitration clauses, including those in contracts executed before the law’s enactment.

The new law may have an outsized impact in the asset management industry, given firms’ reliance on arbitration to resolve all manner of disputes. Companies will need to re-examine their approach to dispute resolution and to their anti-harassment initiatives more broadly.

SGI is pleased to have been a part of earlier efforts to ask companies to remove these unjust clauses from employment contracts. Cindy Bohlen of River Water Partners led engagements with a number of companies in her firm’s portfolio, and she wrote about it here in SGI’s blog.

Of the bill, Cindy Bohlen said, “Corporations will be required to have strong policy regarding remedy following allegations of sexual misconduct, including the right to legal action. This change will ensure that employees feel comfortable coming forward in such cases, which will promote inclusive and healthy corporate culture, benefitting employees and corporations alike.”

In these partisan days, we believe that investor outreach contributed to the passage of this bill in both chambers by wide margins.

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