Second Circuit broadly interprets the Ending Forced Arbitration Act in sexual harassment cases

In 2022, thanks to the #MeToo movement, Congress amended the Federal Arbitration Act to ensure that sexual harassment cases cannot be arbitrated. This was a huge change in the FAA, which courts have broadly interpreted to permit arbitration for just about any dispute, and close calls on this issue usually favor the enforcement of arbitration agreements. But the Ending Forced Arbitration Act embeds this new exception into the statute. Courts are still interpreting the EFAA, including the Second Circuit, which holds in this case that the statute voids any arbitration agreement even if some of the sexual harassment transpired prior to March 2022, when the EFAA was signed into law.

The case is Olivieri v. Stifel Nicolaus & Co., issued on August 12. In this case, the sexual harassment straddles the enactment date; some harassment took place prior to March 2022, and the retaliatory harassment took place afterwards. The post-March 2022 harassment was in retaliation for plaintiff's prior protected activity, a sex discrimination and hostile work environment lawsuit she filed against her employer. The lawsuit predated the EFAA's enactment date.

The employer wanted the court to enforce the arbitration agreement that plaintiff had signed, presumably when she began working for the company, arguing that her claim had accrued prior to the enactment date and noting further that the statute cannot be applied retroactively.

The statute, which the Second Circuit (Raggi, Robinson and Rakoff [D.J.]) notes is the first major revision to the FAA, enacted in the 1920s, states as follows:

Notwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.

The statute adds that it applies “with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act”—i.e., March 3, 2022. This is the language that the Second Circuit grapples with in this case. 

When did plaintiff's claim accrue? The Court writes, "we often refer to a claim accruing and the limitations period starting as two sides of the same coin." That principle is relevant here, as sexual harassment cases often invoke the continuing violations doctrine, which says that a claim involving repeated episodes is timely if one of the episodes took place within the limitations period. 

Most continuing violation arguments fail, as discrete personnel decisions are enough to put the plaintiff on notice that it's time to file an EEOC charge. But in sexual harassment cases, the Supreme Court has held, such harassment creates a continuing violation if related acts of harassment, even if dating back two years, continue into the 300-day statute of limitations under Title VII. When that happens, all the harassment is actionable, including that which predated the 300-day period. The Court writes:

A common type of claim subject to the continuing violation doctrine, and the one relevant to this case, is a hostile work environment claim. Those claims are subject to the continuing violation doctrine because, unlike discrete acts, “[t]heir very nature involves repeated conduct.” A hostile work environment generally doesn’t occur on any one day; it emerges “over a series of days or perhaps years.”

As it happens, plaintiff filed her lawsuit prior to the March 2022 enactment date. But the retaliatory harassment continued following the enactment date. "If Congress had tied the effective date of the EFAA to when a claim first accrues, we might reach a different conclusion. But it didn’t, and we 'do not lightly assume that Congress has omitted from its adopted text requirements that it nonetheless intends to apply.'” Plaintiff's case will be litigated in court, not in the arbitration tribunal, because some of the harassment took place after the EFAA took effect in March 2022. That brings all the harassment into her claim, and it allows her to litigate that harassment under the new law.

This is a huge win for sexual harassment plaintiffs and their lawyers. Plaintiffs do not like arbitration because the proceedings are shielded from public scrutiny, the employer usually pays the private arbitrator for their time, discovery is limited, damages are lower, there are no juries, and I believe the plaintiffs prevail less frequently than in court. 

Three decades ago, the Supreme Court said discrimination suits may be arbitrated, a ruling that attracted a strong dissent from the liberal justices. It took a statute to break through a portion of that ruling, and the ruling in this case is the first time the Second Circuit has ruled that sexual harassment cases in general must be litigated in open court, notwithstanding the arbitration agreement.