Navigating the Ban on Mandatory Arbitration: Where Are We a Year Later?

The content of this article was originally published in Law360.

2022 marked the end of forced arbitration of sexual harassment
claims: Where are we a year later?

Last year, President Joe Biden signed the Ending Forced Arbitration
of Sexual Assault Act, effective March 3, 2022.

Application of the EFAA, however, has been slow -- primarily because
it does not apply retroactively, and until earlier this year, the case
law has involved claims accruing before the effective date. Not until
February of this year did we start seeing substantive interpretation of
the EFAA, almost exclusively from the U.S. district courts in New
York.

Below are the key takeaways from the still-developing case law under the EFAA.
Sexual harassment claims will not be subject to the EFAA unless they are
specifically pled and factually supported under the Iqbal-Twombly plausibility
standard.

In February, in Pepe v. New York Life Insurance Co., the U.S. District Court for the Eastern District of Louisiana was the first district court to address the pleading issue under the EFAA.

The court noted that it "would not presume that a sexual harassment claim existed in the ether where none is alleged."[1]

Even though the plaintiff's complaint mentioned "harassment," he did not bring a claim for sexual harassment under any state or federal statute. Nor did he allege facts that suggested he was a victim of sexual harassment. In addition, the defendant's use of the word "harassment" alone -- without supporting legal or factual allegations from the plaintiff -- did not bring his case within the ambit of the EFAA.

A few weeks later in February, Judge Paul Engelmayer in the U.S. District Court for the Southern District of New York looked at this issue in Yost v. Everyrealm Inc.[2]
Section 401(4) of the act defines "sexual harassment dispute" as "a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law."

Judge Engelmayer found that the term "alleged" as used in Section 401(4) was best read to implicitly incorporate the plausibility standard established by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal[3] rather than a "sanctionably frivolous" standard that the plaintiff sought.

Because the plaintiff could not satisfy the plausibility standard, the district court dismissed her sexual harassment claim, and she was unable to invoke the EFAA to block arbitration of her remaining nonsexual harassment claims.
Lisa HaldarIn March, the U.S. District Court for the Eastern District of New York likewise applied the Iqbal-Twombly plausibility standard in Olivieri v. Stifel, Nicolaus & Co.[4] The district court in Olivieri also considered the procedural applicability of the EFAA, given that the plaintiff's hostile work environment claim involved conduct that spanned before and after the effective date of the EFAA. Under those circumstances, the district court found the EFAA applied to prohibit arbitration of the plaintiff's hostile work environment claim.

While requiring specific allegations and applying the plausibility standard favored the employers in Pepe and Yost, these requirements are not incredibly challenging for most plaintiffs. Indeed, the plausibility standard requires only that a plaintiff allege sufficient facts to raise a reasonable inference that their sexual harassment claim is supported.

That said, employers should be mindful that the existence of the EFAA gives plaintiffs extra motivation to raise baseless sexual harassment claims -- meaning employers with arbitration agreements should be more diligent than ever in analyzing the sufficiency of sexual harassment claims arising after, or at least spanning, the effective date of the EFAA.

The EFAA can sweep in a plaintiffs nonsexual harassment claims brought in the
same legal action so long as they are not too "far afield."

On the same day in February that he issued the Yost opinion, Judge Engelmayer also issued his opinion in Johnson v. Everyrealm Inc., this time looking at whether the EFAA acts to invalidate an arbitration provision as to an entire case involving a viably pled sexual harassment dispute -- as opposed to merely the claims in the case that pertain to the alleged sexual harassment.[5]

Judge Engelmayer reasoned that the text of the EFAA makes clear that its invalidation of an arbitration agreement extends to the entire case relating to the sexual harassment dispute, not merely the discrete claims that allege such harassment or relate to a sexual harassment dispute.

He said that in enacting the EFAA, Congress could be presumed to have been sensitive to the distinct meanings of the terms "case" and "claim." The district court denied the defendant's motion to compel arbitration and ordered that the plaintiff's entire case, including his nonsexual harassment claims, be litigated in court.

Judge Engelmayer also stated in a footnote that he did "not have occasion here 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."

Earlier this June, citing Judge Engelmayer's footnote, the U.S. District Court for the
Southern District of New York -- this time, Judge Stewart Aaron -- determined in Mera v. SA Hospitality Group LLC that when a plaintiff's nonsexual harassment claims have absolutely nothing to do with the sexual harassment claims, those nonsexual harassment claims are still subject to arbitration provisions.[6]

The plaintiff in Mera was a busser for the defendants' restaurant. He signed an arbitration agreement that provided:

• To the maximum extent permitted by law, Employee agrees that any disputes arising out of or in any way relating to Employee's employment or termination from employment with Café Focaccia Inc, SA Hospitality Group or any affiliated entities orindividuals shall be resolved exclusively by final and binding arbitration on an individual basis before one neutral arbitrator, applying the appropriate statutes of limitation.

The plaintiff brought wage and hour claims under federal and state law -- as to a broad group of individuals in addition to the plaintiff -- and state law claims arising from an alleged hostile work environment.

The plaintiff argued that the EFAA rendered his arbitration agreement unenforceable not only as to his hostile work environment claims but also as to his entire case, including his unrelated wage and hour claims. The district court rejected the plaintiff's argument, however, distinguishing the case from Johnson and finding that because the plaintiff's wage and hour claims did not relate in any way to the sexual harassment dispute, they had to be arbitrated under the parties' arbitration agreement.

The Johnson and Mera cases serve as a reminder of an additional threshold analysis
employers must now undergo when a plaintiff is subject to an arbitration agreement: whether the plaintiff's nonsexual harassment claims are in fact related to the plaintiff's sexual harassment claim.

And while Mera and Johnson provide examples of how related claims and far afield claims might look, respectively, they are only two cases -- both from New York, generally considered an employee-friendly jurisdiction.

Much remains to be developed as to just how far afield a claim must be to avoid the EFAA, and more employer-friendly jurisdictions might take a much narrower view of the question.

Indeed, much more remains to be developed generally a year after the enactment of the EFAA, with only a handful of interpretive cases primarily from New York district courts. We will have to wait and see how the more employer-friendly jurisdictions interpret the EFAA.

Lisa Haldar is a partner at Lawrence & Bundy LLC.

This article is for general information purposes and is not intended to be and
should not be taken as legal advice.

[1] Pepe v. New York Life Insurance Co., No. 22 Civ. 4005 (SSV), 2023 WL 1814879 (E.D. La. Feb. 7, 2023).

[2] Yost v. Everyrealm, Inc., No. 22 CIV. 6549, 2023 WL 2224450 (S.D.N.Y. Feb. 24, 2023).

[3] Bell Atlantic. Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009).

[4] Olivieri v. Stifel, Nicolaus & Co., No. 21CV0046JMAARL, 2023 WL 2740846 (E.D.N.Y. Mar. 31, 2023).

[5] Johnson v. Everyrealm, Inc., No. 22 CIV. 6669, 2023 WL 2216173 (S.D.N.Y. Feb. 24, 2023).

[6] Mera v. SA Hospitality Group, LLC, No. 123CV03492PGGSDA, 2023 WL 3791712 (S.D.N.Y. June 3, 2023).