Chipotle Court Loss Fuels Harassment Arbitration Law Scope Fight

A federal appeals court’s rejection of Chipotle Mexican Grill Inc.'s attempt to force a former worker’s sexual harassment and assault claims into arbitration under a landmark 2022 law because of timing sets the stage for more showdowns as judges further assess the statute’s reach.

A three-judge panel of the US Court of Appeals for the Eighth Circuit ruled Aug. 5 that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act covers the former worker’s workplace assault claim against the restaurant chain—even though the alleged misconduct occurred before the law took effect.

The Eighth Circuit has become the first federal appeals court to consider if a worker’s sexual harassment lawsuit, filed after law’s enactment, can bypass arbitration under the EFAA.

The decision in the worker’s favor could open the door to more new lawsuits regarding alleged workplace sexual harassment and assault that took place prior to the EFAA’s March 3, 2022 effective date, employment law attorneys told Bloomberg Law.

They said the Eighth Circuit ruling, affirming a lower court’s decision, could be used to persuade judges outside that circuit to embrace the panel’s interpretation of the statute’s applicability to “any dispute or claim that arises or accrues on or after the date of enactment of this act” —a line that contains terms undefined in the statute.

“Plaintiff counsel will cite this as precedent in future cases. I have no doubt,” said Michael Palmer, New York managing partner at Sanford Heisler Sharp LLP. “This is a fair and reasonable interpretation of what is a rather ambiguous provision in the law.”

In holding that the ex-worker’s claim actually arose for EFAA purposes when she served the legal complaint, initially filed in Minnesota state court, the panel rejected the argument that the start date for the claim should have been at the time of misconduct or when her lawyer informed Chipotle in February 2022 letters that she was considering suing.

“Congress could have said a dispute arises for purposes of this Act when the underlying facts actually occur. It left it ambiguous, so the court looked at the definition of ‘dispute’ as defined by Black’s Law Dictionary,” Palmer said.

While the ruling provides fodder to some workers to keep such cases outside of arbitration, court rulings “will ultimately vary” based on the facts presented, said Anne-Marie Welch of Clark Hill PLC.

Counsel for Chipotle and the ex-employee, Eniola Famuyide, didn’t respond to requests for comment on the decision.

Win for #MeToo

The height of the #MeToo social justice movement in recent years, which saw some of the biggest US corporations ending forced arbitration of sexual harassment-related complaints, pushed Congress to pass bipartisan legislation to allow alleged victims of workplace misconduct to get their day in court.

Former Fox News anchor Gretchen Carlson, who’s been at the forefront of the battle to curb the use of predispute arbitration pacts in employment contracts, said the Eighth Circuit decision falls in line with Congress’s intent.

“New laws are always tested. This was a major change” in the Federal Arbitration Act, “and we expected courts to have different opinions” about its reach, said Carlson, whose group, Lift Our Voices, pushed for the 2022 law. She’s also advocated for the Speak Out Act, another landmark law that invalidated nondisclosure agreements in cases of sexual assault and sexual harassment.

“The ruling is incredibly rewarding. This is huge,” said Carlson. “My hope is that it’s going to influence other judges.”

Mandatory arbitration agreements increasingly have been a means for companies to remove the leverage workers gain through a court complaint—particularly a potential class action—and require them instead to resolve their grievances in private dispute resolution.

The EFAA was a rare amendment of the FAA, a law worker advocates have long said is unfairly used to deny workers their right to a trial in open court on sex-based bias claims and other discrimination and harassment claims.

Arbitration supporters say the FAA benefits all parties because it’s more time- and cost-efficient than litigation.

Timeline Interpretations

The Eighth Circuit ruling joins range of interpretations from lower courts that have examined the issue of when a dispute “arises” or a claim “accrues” for the purposes of bypassing arbitration under the EFAA.

The US Courts for the Southern District of Florida and the District of Utah have addressed whether a claim accrued when harassment or assault occurred or when a worker filed a pre-suit bias charge with an administrative agency before seeking judicial relief.

In this instance, both courts said that a legal dispute starts when a worker files a charge, since that puts them in an adversarial posture with the employer to potentially resolve the claim. The EFAA cannot be invoked if the charge was filed before the law’s enactment, the courts said.

Though this issue of pre-suit charges did not apply in the case of Chipotle, many workers filing harassment claims across the US pursue administrative procedures, before going to court. This makes the timing question answered in Utah and Florida federal courts a consequential one.

Meanwhile, rulings from the Southern District of New York and the Northern District of Texas have addressed key timing questions by allowing workers who alleged sexual misconduct to escape arbitration for pre-EFAA incidents because their lawsuits also cited related allegations that occurred after the law took effect.

While the arbitration law doesn’t apply retroactively, the alleged conduct that took place pre- and post-EFAA was uniformly related and part of the same unlawful action the plaintiffs experienced, the district courts said.

Ensuing Disputes

In the Eighth Circuit decision, the panel said Famuyide’s dispute didn’t arise when the alleged assault occurred because, at that point, she hadn’t asserted any claim, right, or demand against Chipotle.

Her attorney’s pre-suit letters to Chipotle that said they were investigating possible legal claims and asking Chipotle to preserve evidence also didn’t establish a dispute, the judges said.

“Sometimes a dispute ensues after this type of correspondence. But sometimes it does not, either because the client decides not to proceed further after investigation or because the communications result in an amicable resolution between the correspondents,” Judge Steven Colloton wrote in the panel’s opinion.

Until there’s more uniformity in the law, employers will find it challenging navigate inconsistent rulings, Welch said.

These varying interpretations regarding the EFAA’s applicability may eventually “create a circuit split on the issue,” increasing the likelihood that the US Supreme Court will intervene, she said.

Judges Bobby E. Shepherd and David R. Stras joined Colloton in the Eighth Circuit decision.

CrossCastle PLLC represented Famuyide. Lewis Brisbois Bisgaard & Smith LLP and Martenson Hasbrouck & Simon LLP represented Chipotle.

The case is Famuyide v. Chipotle Mexican Grill Inc., 8th Cir., No. 23-03201, ruling issued 8/5/24.