iThe right to bring a claim in court and have a jury of one’s peers decide who is right or wrong is arguably the most powerful weapon in a plaintiff’s arsenal. In an effort to avoid the cost and time commitment of litigation, however, some employers mandate that employees sign binding arbitration agreements that require an employee to bring most employment claims to an arbitrator, rather than a court. From an employer’s perspective, arbitration is beneficial because it is less costly, often more limited in scope, and private. But for employees, these same features can drastically reduce their bargaining power. Arbitration eliminates the threat that an employee-plaintiff has to take her claims to court, where she could engage in wide-ranging discovery to uncover the scope of the employer’s wrongdoing, air her grievances in public, and potentially be awarded attorneys’ fees and costs if she wins.
The Supreme Court has interpreted the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., to establish a broad presumption in favor of the arbitrability of claims. Recognizing the pro-employer framework of arbitration, some statutes prohibit the arbitration of employment claims as a matter of public policy. For instance, the whistleblower provision of the Sarbanes-Oxley Act of 2002 (“SOX”) provides that predispute arbitration agreements are not valid or enforceable for disputes arising under that provision. See 18 U.S.C. 1514A(e)(2). Up until last year, however, federal employment discrimination claims, such as those brought under Title VII of the Civil Rights Act of 1964, and their state counterparts, were generally subject to arbitration.
The Ending Forced Arbitration of Sexual Harassment and Sexual Assault Act (“EFAA”), which took effect in March 2022, changed that. The EFAA amended the FAA to invalidate predispute mandatory arbitration agreements for workers who claim they were subjected to sexual harassment or sexual assault. The EFAA provides, in relevant part, that no “predispute arbitration agreement . . . shall be valid or enforceable” regarding allegations of “conduct constituting a sexual harassment dispute or sexual assault dispute” with respect to a case filed under federal, tribal, or state law that “relates to the sexual assault dispute or sexual harassment dispute.” 9 U.S.C. § 402(a).
Quickly, commentators began to discuss just how far the predispute arbitration ban reached. Could a plaintiff who brought claims of sexual harassment – clearly non-arbitrable according to the EFAA – also escape arbitration as to claims of racial discrimination? What about a whistleblower plaintiff who also experienced sexual assault? The text of the statute bars arbitration for a claim that “relates to” the sexual assault or harassment dispute, but it will be up to the courts to decide just what that means.
One of the first cases to deal with this issue was Johnson v. Everyrealm, Inc., decided by Judge Engelmayer on February 24, 2023. No. 22 CIV. 6669 (PAE), 2023 WL 2216173 (S.D.N.Y. Feb. 24, 2023). In that case, Johnson brought an action against his former employer for eight claims, including sexual harassment claims, but also claims for pay discrimination, whistleblower retaliation, and others. Because Johnson was subject to his employer’s arbitration agreement, the court concluded that, were it not for the EFAA, he would have to arbitrate all his claims. However, the EFAA created two issues for the court: (1) whether the conduct in the complaint “alleges conduct constituting a sexual harassment dispute” so as to come within the EFAA; and (2) whether the EFAA made the arbitration agreement unenforceable as to the entirety of Johnson’s claims, or only as to his claims of sexual harassment. Id. at *11.
After reviewing the facts alleged in the complaint, the court held that it did plausibly plead a claim of sexual harassment. Among other conduct, the employer’s chief executive officer encouraged Johnson to have sex with other employees and made numerous sexualized comments, satisfying the standard under the New York City Human Rights Law that a plaintiff show he was subject to “unwanted gender-based conduct.” Id. at *13-14.
Next, the court determined that all of Johnson’s claims – not just his sexual harassment claims – escaped arbitration. In reaching that conclusion, the court conducted a close review of the EFAA’s text, noting in particular that the EFAA provides that a predispute arbitration agreement is invalid “with respect to a case which is filed under Federal, Tribal, or State law and relates to the . . . sexual harassment dispute.” Id. at *17 (quoting 9 U.S.C. § 402(a) (emphasis added)). The “unambiguous” use of the term “case” indicated that the invalidation of the arbitration agreement “extend[ed] to the entirety of the case relating to the sexual harassment dispute.” Id. at 18. Thus, the court held that Johnson’s entire case – including eight different claims – was non-arbitrable. Id. at *20. In ruling that a plausibly pled claim allows other, non-sexual harassment claims to escape arbitration, the court distinguished prior precedent from the Second Circuit. Specifically, in Daly v. Citigroup Inc., 939 F.3d 415, 425 (2d Cir. 2019), the Second Circuit held that a plaintiff whose complaint included a non-arbitrable SOX claim still had to arbitrate her other claims. In explaining the divergence between Johnson and Daly, Judge Engelmeyer highlighted that the text of the SOX is more cabined than the EFAA. The SOX, for example, provides that “[n]o predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” Johnson, 2023 WL 2216173, at *19 (quoting 18 U.S.C. § 1514A(e)(2) (emphasis added)). Thus, the phrase limits the extent of the anti-arbitration provision by only invalidating agreements if they relate to disputes “arising under” the SOX’s anti-retaliation provision. Id. at *19. By contrast, the EFAA broadly applies to “an entire ‘case’ ‘relating to’ a sexual harassment dispute,” evincing Congress’s intent for the statute to prohibit the arbitration of other claims in a case that also includes a claim of sexual harassment. Id.
Other courts have followed Johnson’s reasoning and noted that the EFAA blocks arbitration of other claims if the plaintiff pleads a plausible sexual harassment/assault claim. See, e.g., Delo v. Paul Taylor Dance Found., Inc., No. 22-CV-9416 (RA), 2023 WL 4883337, at *8 (S.D.N.Y. Aug. 1, 2023); Watson v. Blaze Media LLC, No. 3:23-CV-0279-B, 2023 WL 5004144, at *2 (N.D. Tex. Aug. 3, 2023).
Another important takeaway from the Johnson case is that the EFAA’s application to “conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law” includes conduct alleged to constitute sexual harassment under local laws. 2023 WL 2216173 at *12 n.14. This is important because some local laws, such as the New York City Human Rights Law, provide even broader definitions as to what constitutes sexual harassment than their federal and state counterparts. Accordingly, if a plaintiff’s claims arise in one of these local jurisdictions with a broad conception of sexual assault or harassment, this could widen the scope of what a court would consider to be a plausibly pled claim.
Of note, the Johnson court did not parse the meaning of “relating to” in the statute and whether a claim that relates to sexual harassment but does not directly allege sexual harassment can forestall arbitration. For instance, an employer could retaliate against an employee who reported sexual harassment – which would give rise to a retaliation claim, but not necessarily a sexual harassment claim. Id. at *11 n.13. The court left for another day whether this type of claim would be subject to arbitration under the EFAA, but Johnson’s favorable holding as to other non-sexual harassment claims suggests that a retaliation claim premised on sexual harassment would also likely be non-arbitrable.
At least one other court to address the scope of the EFAA has held that claims that “do not relate in any way to the sexual harassment dispute” remain subject to arbitration. Mera v. SA Hosp. Grp., LLC, No. 123CV03492PGGSDA, 2023 WL 3791712, at *4 (S.D.N.Y. June 3, 2023) (Stewart, J.) (finding that plaintiff’s wage and hour claims bore no relation to the sexual harassment dispute and granting motion to compel arbitration on those claims). In Mera, the court rejected the plaintiff’s argument that his wage and hour claims, which were pled on behalf of a large group of individuals, could not be arbitrated because the plaintiff also brought a sexual harassment claim. Id. In so holding, the Mera court noted, “To hold otherwise would permit a plaintiff to elude a binding arbitration agreement with respect to wholly unrelated claims affecting a broad group of individuals having nothing to do with the particular sexual harassment affecting the plaintiff alone.” Id. at *3.
The Johnson court also did not consider the argument raised by amici that even a claim for sexual harassment that was not plausibly pled – and thus would not survive a motion to dismiss – could implicate the EFAA and render the rest of the case non-arbitrable. Johnson, 2023 WL 2216173, at *11. Instead, Judge Engelmeyer addressed that question in the companion case Yost v. Everyrealm, Inc., No. 22 CIV. 6549 (PAE), 2023 WL 2224450 (S.D.N.Y. Feb. 24, 2023). In Yost, the court held that the use of the term “alleged” in the EFAA was best read to mean that a plaintiff had to not only allege, but plausibly plead a sexual harassment claim to sidestep arbitration. Id. at *16. Among other reasons, the court found that this reading of the statute vindicated Congress’s purpose in enacting it: “to empower sexual harassment claimants to pursue their claims in a judicial, rather than arbitral, forum.” Id. at *17. Even under the broad standards in the New York City Human Rights Law, Yost did not plead any facts tying the objectionable conversations about sexual matters to her gender or sexual orientation, so the EFAA did not apply. Id. at *13-14.
Courts are still determining the precise contours of the EFAA, but the statute is a powerful vindication of the #MeToo movement and welcome news for employees who have signed arbitration agreements. Congress still needs to pass broader exceptions to the FAA, such as the FAIR Act – which would prohibit the arbitration of any employment dispute – to protect all employees’ right to their day in court under state, tribal, and federal law. Doing so will ensure that the FAA is limited to its purpose of enforcing bilateral agreements between businesses or post-dispute agreements between employers and employees, and not of providing employers a shield that prevents their employees from vindicating their rights in court.
