Real World Impact: A recent New Jersey Superior Court decision interpreting the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) may require New Jersey employers to defend an employee’s employment-related claims before both a judge and arbitrator.
Background
New Jersey Bergen County Superior Court Judge John O’Dwyer recently ruled in Paton v. Davis Saperstein that some employee claims against an employer must be arbitrated, but other claims relating to sexual harassment had to be litigated. As explained below, the court’s decision on how to apply the federal EFAA is contrary to court decisions in other states.
In 2022, in response to the #MeToo movement, President Biden signed the EFAA, which amends the Federal Arbitration Act (FAA) to prohibit mandatory arbitration of sexual harassment and assault claims. Specifically, the law renders a pre-dispute arbitration agreement or joint action waiver unenforceable in a case that is filed under “Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.”
Courts usually err on the side of enforcing arbitration agreements pursuant to the FAA, which states that arbitration agreements are “valid, irrevocable and enforceable.” However, many #MeToo reformists argued that mandatory arbitration agreements allowed sexual harassment claims to be “swept under the rug” in a private forum, which could permit a perpetrator’s sexual harassment or assaults to continue in the workplace. The EFAA allows employees who plausibly allege sexual assault or harassment claims to bypass the requirements of an arbitration agreement and instead seek a remedy in a public forum, i.e., the courts.
Inconsistency Among the Courts
Courts have not applied the EFAA consistently. Most courts that have considered the issue have held that when a plaintiff-employee plausibly pleads sexual harassment or assault, the EFAA bars the arbitration of all the employee’s workplace legal claims. The New Jersey court’s decision in Paton v. Davis Saperstein highlights a split in the courts in how the EFAA should be applied. In Paton, two plaintiffs brought six claims in Superior Court against their former employer, the New Jersey law firm Davis Saperstein & Salomon, P.C. Among their various employment-related claims, the plaintiffs asserted claims for sexual harassment, hostile work environment, discrimination, retaliation and wage and hour violations.
In response to the lawsuit, the Davis Saperstein law firm filed a motion to dismiss arguing the two plaintiff-employees were bound by agreements requiring the arbitration of workplace disputes. Judge O’Dwyer dismissed the plaintiffs’ wage and hour, retaliation, and discrimination claims pursuant to the law firm’s arbitration agreement, which broadly encompassed disputes relating to “employment, employment discrimination, compensation or benefits, tort claims, or claims under any federal, state or local statute.” The agreement was a “clear and express waiver of [the employees’] rights,” thus reserving the claims for arbitration. However, Judge O’Dwyer denied the law firm’s motion to dismiss the remaining sexual harassment, hostile work environment and gender-based discrimination claims in reliance upon the EFAA.
The Paton decision marks a departure from other jurisdictions, highlighting what may become a significant divergence in the case law. Earlier this month, in Yongtong Liu v. Miniso Depot CA, Inc., the California Court of Appeal (Los Angeles County) held that although many of the plaintiff’s claims were otherwise subject to arbitration, her one sexual harassment claim required all claims to be litigated in court.
Similarly, in Johnson v. Everyrealm, Inc., the U.S. District Court for the Eastern District of New York denied a defendant-employer’s motion to compel arbitration pursuant to the employee’s arbitration agreement. The underlying complaint included discrimination claims for race, ethnicity, pay discrimination and sexual harassment. Applying a textual reading to the Act, the court “construe[d] the EFAA to render an arbitration clause unenforceable as to the 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.”
Implications of Dual Forums
The consequence of the Paton decision—dual forums—presents an emerging concern, especially for defendant employers and their counsel. A court’s separation of EFAA claims from other employment-related allegations potentially requires employers to defend an employee’s employment-related claims before both a judge and arbitrator. The decision arguably could encourage a plaintiff-employee to allege sexual harassment/assault with other alleged employment law violations to avoid arbitration. Additionally, related but separate proceedings will also likely burden employers with increased defense costs and inconvenience.
Of course, the EFAA is a relatively new law, and most courts have not considered how it should be enforced. However, the Paton decision (unless reversed) suggests that New Jersey employers with arbitration agreements may find themselves adjudicating employee disputes in two forums if one of the employee’s legal claims is for sexual harassment or assault. This could increase employers’ legal risks and expense and change the analysis of case settlement value. If other courts follow the Paton ruling, employers might forego motions to compel arbitration if the employee has alleged sexual harassment/assault among other employment-related legal claims.
Employers should also note that the EFAA does not require workplace arbitration agreements to affirmatively state the EFAA’s bar on requiring arbitration for sexual harassment or assault claims. However, if the Paton two forum approach becomes more generally accepted by the courts, employers might consider amending their arbitration agreements to make clear that the employer will require all claims to be litigated in court if the employee is claiming sexual harassment or assault.