We previously reported on the enactment of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”), a law that amended the Federal Arbitration Act (“FAA”) to preclude mandatory arbitration of sexual harassment and sexual assault cases. After the EFAA, employers utilizing mandatory arbitration programs must carve out sexual harassment and sexual assault disputes from the list of claims that employees must arbitrate. Employees have the option of pursuing sexual harassment and sexual assault claims through arbitration if they wish, or they may pursue such claims in federal, state, or tribal courts.
One question that we raised when Congress passed the EFAA was what impact the law would have when an employee asserts sexual assault/sexual harassment claims along with other employment claims, such as pairing a sexual harassment claim with a race discrimination or retaliation claim. Under the EFAA, one claim can be compelled to arbitration, while the other cause of action (sexual harassment) cannot be. One federal district court has finally addressed this question, deciding in twin companion cases filed against a “virtual real estate” company that its employees were relieved from arbitrating any claims against the company if they asserted plausible claims of sexual harassment or sexual assault. Johnson v. Everyrealm, Inc., Case No. 22 Civ. 6669 (PAE), 2023 WL 2216173 (S.D.N.Y. Feb. 24, 2023) (“Johnson”); Yost v. Everyrealm, Inc., Case No. 22 Civ. 6549 (PAE), 2023 WL 2224450 (S.D.N.Y. Feb. 24, 2023) (“Yost”).
Teyo Johnson, a former NFL and Canadian Football League tight end, was hired by Everyrealm, a company selling “real estate” in the metaverse, to develop strategic partnerships with athletes, celebrities, and influencers in order to increase the brand’s visibility, but he alleged that he was subject to offensive racist and sexist comments and conduct, beginning even in his interview with the company’s CEO. He sued Everyrealm for race discrimination, pay discrimination, sexual harassment, race, gender and ethnicity discrimination, retaliation and common law intentional infliction of emotional distress.
In a separate action, Katherine Yost, Everyrealm’s former Chief Human Resources Officer, alleged that she had been subjected to discrimination on the basis of gender, sexual orientation, disability and marital status; gender-based pay discrimination; sexual harassment; retaliation; and common law intentional infliction of emotional distress. With respect to her sexual harassment claim, Yost claimed that she witnessed sexual conduct and comments, including some of the ones directed toward Johnson, and that she was targeted with sexual innuendo because she openly identified as bisexual.
Both Johnson and Yost had signed broad mandatory arbitration provisions as conditions of their employment. Everyrealm moved to compel arbitration of both employees’ lawsuits; the employees opposed. The court acknowledged that, “[w]ere it not for the EFAA, all claims pursued … here would be required to be resolved in arbitration,” but because both employees alleged sexual harassment, the court had to consider whether to bifurcate their sexual harassment claims, allowing the employees to litigate these claims but compelling arbitration of their other claims, or whether the assertion of a sexual harassment claim precluded arbitration altogether.
Johnson alleged that he was repeatedly pressured to have sex with colleagues (including the CEO) and clients, even after he objected, and that he was subjected to rampant sexual comments about him, his girlfriend, and his colleagues. The court found that these allegations sufficiently pled a cause of action for sexual harassment under municipal law (the most lenient pleading standard of the various sexual harassment theories he advanced). Turning, then, to the EFAA, which states that it renders invalid and unenforceable a pre-dispute arbitration agreement “with respect to a case which is filed under Federal, Tribal, or State law and relates to the … sexual harassment dispute,” 9 U.S.C. § 402(a) (emphasis added), the court concluded that the EFAA’s “text is clear, unambiguous, and decisive” and requires invalidation of the arbitration clause as to the entire “case” relating to the sexual harassment dispute, not just the claim or claims in which that dispute plays a part.
The Johnson court observed that, although the EFAA makes clear that it applies “to any dispute or claim that arises or accrues on or after March 3, 2022,” Congress chose to invalidate mandatory arbitration provisions in cases relating to sexual harassment – a phrasing choice the court found to be intentional. The court also found it significant that the EFAA amended the FAA directly, unlike other statutory amendments that more selectively invalidate certain types of arbitration agreements (such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010). The Johnson court viewed this drafting choice as reinforcing Congress’ intent to override the FAA’s general principle that, in cases involving both arbitrable and non-arbitrable claims, the former must be arbitrated “even if this will lead to piecemeal litigation.”
Because Johnson alleged a plausible cause of action for sexual harassment, the court allowed him to litigate all of his claims against Everyrealm. Yost was not as fortunate. Although the court applied the same reasoning, it held that Yost had not plausibly alleged a claim of sexual harassment. Although she alleged that she was exposed to chatter about the sexual activities and presumed sexual orientations of her coworkers, Yost did not allege that “chatter to this effect had anything to do with [her] ‘gender’ or ‘sex.’” Furthermore, although Yost alleged that she believed she was subjected to sexual comments (including questions about whether she believed certain coworkers were gay, asexual, or bisexual) because of her bisexuality, the Court dismissed this speculation as conclusory and found that she had failed to allege specific facts tying the conduct to her own gender or sexual orientation. Therefore, although the Court agreed that the alleged remarks to which Yost was subjected were “crude,” “inappropriate,” and “infantile,” it did not find that Yost had stated a plausible claim of sexual harassment under applicable law.
Nonetheless, Yost and amici urged the Court to deny arbitration, arguing that the EFAA should be triggered even where an implausible claim of sexual harassment is pled, as long as the claim is “not sanctionably frivolous.” The Yost court rejected this theory. Because the EFAA requires that the dispute relate to “conduct that is alleged to constitute sexual harassment under applicable” law, the Yost court read this language to require that the sexual harassment (or assault) claim must be capable of surviving dismissal at the threshold of the litigation in order to neutralize a mandatory arbitration provision, as compelling arbitration of a case that no longer contains a plausible sexual harassment claim does not serve the EFAA’s purpose of empowering sexual harassment claimants to pursue their case in a judicial forum. This result eases employers’ concerns that employees will tack on implausible sexual harassment or assault claims solely to evade arbitration of unrelated employment claims.
Just this month, the Southern District of New York was asked to revisit this issue in Mera v. SA Hospitality Grp., LLC, Case No. 1:23-cv-03492(PGG)(SDA),— F. Supp. 3d —, 2023 WL 3791712 (S.D.N.Y. Jun. 3, 2023). In Mera, a restaurant busser alleged that he was subjected to harassment because of his sexual orientation, specifically that he had endured relentless homophobic slurs, inquiries about his sexual relationships, and groping by two coworkers and a manager. The plaintiff also alleged that he had not received all wages to which he was entitled and sought to pursue class and collective relief under federal and state wage law. His employer moved to compel arbitration, invoking a broad provision in his employment agreement requiring arbitration of “any disputes arising out of or in any way relating to Employee’s employment or termination of employment.” In response, the plaintiff alleged that his sexual harassment allegations should neutralize the arbitration agreement with respect to all of his claims, including his putative class and collective claims for unpaid wages.
The Mera court disagreed. Although the court concluded that Mera alleged a plausible claim of sexual harassment under state law and thus pled a dispute within the scope of the EFAA, it invalidated the arbitration provision only with respect to the sexual harassment claim and not with respect to the plaintiff’s wage and hour claims. Unlike the judge in Johnson/Yost, the judge in Mera concluded that the EFAA renders an arbitration provision unenforceable only to the extent that the case filed by such individual ‘relates to’ the sexual harassment dispute, see 9 U.S.C. § 402(a); “in other words, only with respect to the claims in the case that relate to the sexual harassment dispute.” “To hold otherwise,” the Mera court wrote, “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.”
Rejecting Johnson as “inapposite,” the Mera court distinguished Johnson’s claims of being singled out for disparate treatment from Mera’s claims that “all non-exempt employees, including servers, bartenders, barbacks, waiters, bussers, and food runners” were underpaid. Finding that the only claims distinct to the plaintiff were his harassment claims, the Mera court determined that the putative class/collective wage and hour claims did not relate in any way to the sexual harassment dispute and must be arbitrated. Although reaching a different result, the Mera court specifically referenced language in the Johnson opinion wherein the Johnson court cautioned that it did “not have occasion to consider the circumstances under which claim(s) far afield might be found to have been improperly joined with a claim within the EFAA so as to enable them to elude a binding arbitration agreement.” Implicit in this reference was the Mera court’s assumption that the plaintiff before him was attempting to effectuate an end-run around an otherwise binding arbitration provision precluding class and collective wage and hour actions by shoehorning in a hostile work environment claim.
These decisions underscore the uncertainties that remain in applying the EFAA. Although not binding on courts outside the Southern District of New York, they suggest a few principles likely to guide other federal courts presented with similar issues: (1) plausible sexual harassment allegations will likely neutralize arbitration clauses to all individual causes of action, (2) plainly implausible sexual harassment claims should not defeat arbitrability, and (3) courts are likely to look skeptically at attempts by putative class representatives to use the EFAA to defeat arbitration, particularly as to claims unrelated to sexual assault or harassment. Stay tuned for further developments in this area.