A pair of recent employment case rulings out of the Southern District of New York appear to be the first decisions to test the substantive scope of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA).
In one of the cases, the judge held that sexual harassment claims will keep an entire employment case out of arbitration, based on a new federal carve-out law. In that case, the harassment claim survived the defendants’ challenge, and the case will proceed in court.
But in the other case, the same judge made clear that the carve-out will only apply if the sexual harassment claims can pass plausibility muster, and dismissed the harassment claims in that case, making it more likely that the case will eventually be sent to arbitration.
Previous cases involving the EFAA only addressed the retroactivity of the law—whether the conduct alleged in the complaint at hand fell within its scope from a timing perspective. These rulings take the law’s application to a new level and heighten the already-vigorous battles over sexual harassment claims in employment cases.
Arbitration Carve-Out For Sexual Harassment Claims
The two cases—both decided on Feb. 24—reached opposite results regarding the applicability of the EFAA, which amended the Federal Arbitration Act (FAA).
While the FAA upholds arbitration agreements in general, the EFAA states that preexisting arbitration agreements and class action waivers, at the election of the plaintiff, are not “valid or enforceable with respect to a case” that relates to a sexual assault or a sexual harassment dispute.
The EFAA defines a “sexual harassment dispute” as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” That definition ended up being important to the court in two recent cases, as did Congress’ use of the words “case” and “claim.”
Recent Cases Test Substantive Reach of the EFAA
The plaintiffs in both the cases sued their employer, Everyrealm Inc., alleging sexual harassment, as well as other types of employment discrimination. In both cases, the defendants filed motions to dismiss based on the sexual harassment claims. The defendants alleged that the plaintiffs’ sexual harassment claims weren’t legitimate and that the plaintiffs injected the claims into the lawsuit to avoid the arbitration that was part of their employment contracts.
Interestingly, in both SDNY cases, Judge Paul A. Engelmayer gave the plaintiffs an opportunity to amend their complaints to make sure that any sexual harassment claims were fully before the court when it made its decisions. Both provide useful signposts as to where EFAA litigation could be headed.
A ‘Claim’ Is Part of a ‘Case’
In one of the cases, Johnson v. Everyrealm, the court found that the sexual harassment claims alleged met federal pleading standards. Specifically, the court found that the plaintiff had plausibly alleged a sexual harassment employment claim under the most lenient statute applicable: the New York City Human Rights Law.
The court then determined that the plain text of the EFAA requires that an entire case be excluded from arbitration if any of the claims in that case plausibly alleges sexual harassment. Case law overwhelmingly “underscores that a ‘case’ or ‘action’ refers to an overall legal proceeding filed in a court, whereas a ‘claim’ or ‘cause of action’ refers to a specific assertable or asserted right within such a proceeding,” the court said.
Accordingly, the court denied the Johnson defendants’ motion to dismiss in favor of arbitration, and directed that the defendants respond to the amended complaint and proceed with litigation.
A group of amici—rare at this initial stage in a trial court—chimed in on both cases. The amici argued that sexual assault or harassment claims that don’t meet federal pleading standards should still send a case to arbitration under the EFAA, so long as the claims are not sanctionably frivolous. Engelmayer didn’t consider that issue in Johnson, stating that it was addressed in the companion decision.
Insufficient Claims Don’t Trigger the EFAA
In the companion decision, Yost v. Everyrealm, the court found that the sexual harassment claims couldn’t withstand the defendants’ motion to dismiss for failure to state a claim.
Although the court found that the plaintiff successfully alleged inappropriate workplace comments, it also found that she didn’t allege a sufficient connection between those comments and any legally protected characteristic applying to her. The court interpreted the EFAA to “require that, where a party seeks to invoke the EFAA based on a claim of sexual harassment, such a claim must have been plausibly pled.” Thus, there was no reason to apply the EFAA, the court said.
Engelmayer ordered the parties in Yost to continue with additional briefing on other arguments surrounding the arbitration agreement, including to which defendants the agreement applies. The plaintiff filed her brief on these issues on March 10; the defendants’ briefs are due today, and the court said that it “does not invite a reply.”
Unless the arbitration agreement is found to be unenforceable for one of the other reasons the plaintiff alleges, this case is likely to head to arbitration. (Engelmayer wasn’t terribly receptive to the unenforceability arguments made in the Johnson case, so depending on the facts, similar arguments may not get much traction in Yost.)
The Path Forward
Employment plaintiffs in federal court need to be prepared to support sexual harassment claims with as many pertinent facts as possible, paying close attention to the elements of the federal or state law claims they advance. If they fall short, the claims could be dismissed and any arbitration clause could be enforced against the remaining claims.
On the flip side, defendant employers seeking to enforce arbitration agreements should be prepared to make an early attack on sexual harassment claims, taking into account federal pleading standards under FRCP 12(b)(6) and the cases interpreting it.
Bloomberg Law subscribers can find related content on our Practical Guidance: Title VII Sex Discrimination and Sexual Harassment Litigation, Practical Guidance: Motions to Dismiss for Failure to State a Claim, Practical Guidance: Arbitrability, Practical Guidance: Contract Actions, Practical Guidance: Contract Defenses pages, our In Focus: Sexual Harassment page, and our Practical Guidance: Sexual Harassment page.
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