The New Jersey Appellate Division has ruled that arbitration agreements are unenforceable whenever a lawsuit includes an adequately pled claim of sexual harassment or sexual assault because a federal law requires that the entire case — not just the harassment or assault count — must be litigated in court.
The Court's ruling calls for broad enforcement of the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA).
The appellate court consolidated appeals arising from two employment cases, McDermott v. Guaranteed Rate, Inc., et al. and Rivera-Santana v. CJF Shipping, LLC, et al. and reversed trial court orders that had split each complaint, compelling “non-harassment” claims to arbitration while leaving sexual harassment-based claims in court.
Background
Congress enacted the EFAA in early 2022 and it was signed into law by President Biden. Attributed to the #MeToo movement, the law was aimed at preventing the adjudication of sexual harassment and assault claims in private arbitration. It amended the Federal Arbitration Act such that, unless the plaintiff elected to litigate the case in arbitration, a case alleging sexual assault or sexual harassment could not be compelled to arbitration over the plaintiff’s objection. The EFAA deferred to the applicable state, federal, or tribal law of the relevant jurisdiction for how to define sexual harassment or sexual assault.
In the first case, McDermott alleged sexual harassment, gender discrimination, constructive discharge, failure to pay wages due, breach of contract, commercial misappropriation of her likeness, unfair competition, and tortious interference with prospective contractual relationships.
In the second case, Rivera-Santana alleged gender discrimination, hostile workplace sexual harassment, wrongful termination, and discrimination, retaliation, and wrongful termination based on her pregnancy.
In both cases, the plaintiffs had signed arbitration agreements. The trial courts denied motions to dismiss the claims of sexual harassment (for reasons unrelated to application of the EFAA), but both trial courts compelled arbitration on the claims that they held did not relate to the facts underpinning the claims of sexual harassment.
In McDermott’s case, this meant compelling arbitration on her claims of wages due, breach of contract, commercial misappropriation of her likeness, and tortious interference with prospective contractual relations. Similarly, the court compelled arbitration on Rivera-Santana’s claims relating to pregnancy discrimination.
In both instances, the trial courts concluded that because there were counts that rested on different facts than the facts that comprised the sexual harassment counts, the claims were required to be bifurcated under the EFAA and the plaintiffs would need to litigate some claims in court and the remaining claims in arbitration.
Bifurcation Reversed
The Appellate Division reversed. It found that the text of the EFAA was clear: when a plaintiff files a complaint that alleges sexual harassment or assault, and there are other claims in the complaint, none of the claims can be compelled to arbitration.
The court reasoned that, after an exhaustive review of published federal and state court decisions, the overwhelming majority of courts had come to the same decision. And, deciding whether a claim related to sexual harassment at the pleading stage was far too early to justify bifurcating the complaint — as discovery progresses, a fact that may have appeared to only relate to, for example, a failure to pay wages may ultimately also relate to a claim of sexual harassment.
Lastly, the court highlighted the practical difficulties of bifurcating a complaint, litigating in two forums, and needing to “carve up” a complaint at the pleading stage. All of these reasons supported a conclusion that the trial courts had erred in bifurcating the plaintiffs’ pleadings.
The practical effect of the Appellate Division’s holding is that now any complaint filed by a plaintiff where the plaintiff alleges sexual harassment or assault will be litigated in state court, irrespective of whatever other employment-related claims are made. The pleading will not be bifurcated and all claims will be litigated in court.
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