Courts Expand Allowable Claims Under #MeToo Arbitration Law (1)

A growing body of federal court rulings that allow workers to bypass arbitration with non-sexual harassment claims that are intertwined with allegations of sexual misconduct in lawsuits is teeing up a judicial showdown over the intent of a #MeToo-era law.

President Joe Biden signed the bipartisan Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act into law in March 2022 with the express purpose of voiding forced arbitration agreements specifically for claims of workplace sexual harassment.

Since the law’s enactment, at least six federal district courts—in California, New York, Ohio, Pennsylvania, and Texas—have broadly interpreted it to encompass an entire suite related to sexual misconduct, along with other workplace grievances such as retaliation, discrimination, and wage-and-hour violations. Judges have found that the statute’s ambiguity stems from its language that a “case” rather than a “claim” concerning allegations of workplace sexual misconduct can no longer be forced into arbitration.

Only a handful of district courts have so far addressed the EFAA’s applicability in such disputes, but the emerging body of case law is laying the groundwork for federal appellate courts to examine the issue, ultimately paving the way for a likely review by the US Supreme Court.

Sarah Rudolph Cole, a law professor at Ohio State University and director of the school’s Program on Dispute Resolution, predicted before the EFAA’s enactment that district courts would grapple with its scope. Nevertheless, she said a “broad” reading of the statute aligns with its text.

Courts are hesitant to separate claims that rely on one another because doing so could lead to concurrent proceedings, burdening judicial resources and doubling the litigation costs for claimants “which I wouldn’t be excited about if I were the arbitrator,” Cole said. “It would just create more potential procedural problems and delays.”

The developing EFAA case law warns companies to prioritize implementing effective anti-harassment training programs and act proactively to prevent liabilities by fostering a workplace environment, said Laura Salerno Owens, a shareholder at Markowitz Herbold PC who has represented both workers and employers on workplace disputes.

Employers should use this as an opportunity to reduce the likelihood of these claims by “investing in training programs, changing reporting mechanisms,” and proactively investigating and addressing allegations as soon as they arrive, Owens said.

Broader Application

District judges who agreed that the EFAA doesn’t only shield claims of sexual misconduct have frequently cited a February 2023 ruling that allowed former NFL player Teyo Johnson to escape celebrity investor-backed digital real estate company Everyrealm Inc.'s bid to arbitrate his race and pay discrimination, retaliation, and harassment claims.

In Johnson v. Everyrealm Inc., US District Judge Paul Engelmayer of the Southern District of New York ruled that Congress amended federal arbitration law with text that broadly blocks enforcement of an arbitration clause to an entire “case” “relating to” a sexual harassment dispute.

Engelmayer notably dismissed Everyrealm’s contention that Johnson’s omission of sexual harassment claims in his initial complaint indicated fabrication to evade his arbitration agreement. The court had to consider the allegations in the amended complaint as true and could not simply ignore them, the judge said.

Claims of race and pay discrimination can be interrelated and stem from the same underlying facts that suggest a pattern of sexual harassment, said Gary D. Friedman, a partner at management-side law firm Seyfarth Shaw LLP. However, federal appellate courts may need to “draw the line” to clarify the situations in which non-sexual harassment claims are inappropriately brought forth in cases invoking the EFAA, he said.

Workers may otherwise attempt to combine arbitrable workplace disputes with claims of sexual misconduct to circumvent arbitration, Friedman said.

“It’s a slippery slope,” Friedman added. “If Congress intended anything related to your employment to be swept into the exception, it would have stated that.”

No Winning Streak

But Zak Franklin, managing attorney at worker-side firm Franklin Law PC, said claimants cannot casually include sexual harassment claims in such lawsuits. They’re subjected to pleading standards and must present viable or plausible sexual harassment claims to activate EFAA coverage for the other alleged discrimination claims, he said.

Attorneys also are bound by ethics rules that prohibit them from filing frivolous pleadings, Franklin added.

“I don’t think there’s any evidence that plaintiffs’ lawyers are going to abuse this or make frivolous allegations to avoid mandatory arbitration,” he said. “There are plenty of mechanisms for the defense to challenge that at the early and later stages of the case” to compel arbitration.

Franklin added that defense lawyers want “their home-field advantage by going to arbitration, so it doesn’t surprise me that they would sometimes misconstrue what the plaintiffs are doing.”

Even though most of the rulings on the issue have so far sided with workers, at least two district courts have reached the opposite conclusion.

In Mera v. SA Hospital Group LLC, a restaurant employee alleging discrimination based on his sexual orientation was forced to arbitrate claims both for unpaid wages and for a hostile work environment. A New York district judge found that they were “wholly unrelated” to his sexual harassment, which the EFAA covered.

And in Yost v. Everyrealm Inc., Engelmayer concluded that the “crude” remarks the plaintiff allegedly heard from co-workers regarding her sexuality didn’t give rise to a plausible claim of sexual harassment. Her retaliation and wage violation claims were also tossed.

#MeToo Effect

Predispute arbitration agreements in employment contracts, often signed at the time of hiring, have increasingly been used to compel workers to resolve disputes via private dispute resolution mechanisms, thereby relinquishing any benefits they might obtain from litigation, particularly in the case of potential class actions.

Arbitration defenders in the business and legal community say it’s an easier and less costly route for workers and employers to resolve their claims, but worker advocates counter that it ignores the constitutional right to a jury trial.

The EFAA was a rare amendment to the Federal Arbitration Act, which otherwise generally favors the enforcement of valid arbitration agreements. Its expansion of worker rights marked a significant win for the #MeToo social justice movement, which upended the formerly broad use of forced arbitration for sex bias claims in corporate America.

During the legislative process, several congressional lawmakers made different statements regarding the EFAA’s scope. But those comments may have a limited impact on how courts interpret the actual law. The Supreme Court’s 2001 ruling in Circuit City v. Adams requires them to evaluate the statutory language at issue rather than the legislative history on matters concerning the FAA.

As EFAA case law slowly takes shape, lawmakers have introduced measures seeking to curtail mandatory arbitration agreements in workplace disputes concerning age and racial bias.

The early EFAA rulings could shape future arbitration carveouts, potentially prompting lawmakers to clarify their intentions more explicitly, Owens said.

“These types of decisions, seeing that courts can interpret things perhaps more broadly than one might have expected, can’t help but impact what’s gonna happen with future legislation,” she said.