By way of reminder, in 2018, New York enacted a law that prohibits forced arbitration of sexual harassment claims (later expanded to include discrimination claims), "except where inconsistent with federal law." However, most courts that have examined the issue held that the law was preempted by the Federal Arbitration Act (the "FAA"). The March 3, 2022 amendments to the FAA, known as the "Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act" (EFAA), prohibited only mandatory enforcement of sexual harassment and sexual assault disputes, leaving discrimination and retaliation claims most likely to remain arbitrable.
Two recent decisions in the United States District Court for the Southern District of New York have set new precedent that under certain circumstances, employers can no longer compel employees to arbitrate discrimination and retaliation claims.
In Johnson v. Everyrealm, Inc., et al (S.D.N.Y. Feb 24, 2023), an employee sued his former employer for sexual harassment as well as pay discrimination and discrimination based on race, gender and ethnicity, having previously signed an arbitration agreement with a broad and fairly standard clause agreeing that "any dispute or controversy" would be settled via arbitration. While the employer moved to compel only arbitration of claims other than sexual harassment, acknowledging that those claims fell under the EFAA, the Court ruled that the EFAA rendered the arbitration clause unenforceable as to the entire case.
Judge Paul Engelmayer reasoned that because the plain language of the EFAA makes a pre-dispute arbitration agreement invalid and unenforceable "with respect to a case which is filed under Federal, Tribal or State law and that relates to the . . . sexual harassment dispute" (emphasis added), he would construe the EFAA to render an arbitration clause unenforceable as to the entire case, as opposed to merely the discrete claims in the case that pertain to the alleged sexual harassment.
In a second case, Yost v. Everyrealm, Inc., Judge Engelmayer ruled that because the sexual harassment claims that had been raised were insufficiently plead and could not survive a motion to dismiss, the EFAA was not implicated with respect to arbitration of the remaining, non-sexual harassment claims.
Employers should be aware that broad arbitration clauses may now be unenforceable for discrimination and retaliation claims, so long as the underlying sexual harassment claims has been adequately plead.
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