The Everyrealm Cases
One judge in the Southern District of New York has issued two decisions, with very different outcomes, interpreting the scope of the EFAA. In Yost v. Everyrealm, Inc., No. 22 Civ. 6549 (PAE) (S.D.N.Y. Feb. 24, 2023), and Johnson v. Everyrealm, Inc., No. 22 Civ. 6669 (PAE) (S.D.N.Y. Feb. 24, 2023), different plaintiffs, Katherine Yost and Teyo Johnson, shared the same defendant, Everyrealm. Both Yost and Johnson alleged being subjected to sexual harassment by Janine Yorio, Everyrealm’s chief executive officer and a member of its board of directors. It was not until Everyrealm moved to compel arbitration under their respective employment agreements that Yost and Johnson then added sexual harassment claims to their respective cases and sought to preclude arbitration under the EFAA. However, the similarities ended there.
Yost: Implausibly pled claims do not invalidate an otherwise enforceable arbitration agreement under the EFAA.
Along with the sexual harassment claims added by her amended complaint, Yost alleged a multitude of federal and state law claims, including pay discrimination, retaliatory termination, and intentional infliction of emotional distress. Judge Paul A. Engelmayer laid a framework for determining enforcement of the EFAA. The court first determined which law should guide the analysis, then assessed the plausibility of the alleged sexual harassment claim under the guiding law. Based on these two factors, the court in Yost concluded that the EFAA requires that a plausible claim of sexual harassment be pled in order to present a barrier to arbitration.
The problem with Yost’s harassment claims was that none of the acts or remarks alleged as sexually harassing targeted Yost directly. In essence, as the court viewed her allegations, Yost had heard two comments by Yorio about other employees’ sexual orientations, neither directed to Yost.
The court in Yost engaged in a two-part analysis. First, the court determined that interpretation of the term “allege” in the EFAA was necessary because the act applies when the plaintiff is “alleging” conduct constituting a sexual harassment dispute. The court concluded that the term “allege” as used in the EFAA requires that, if true, the allegations would plausibly state a judicially cognizable claim. Accordingly, the court started the analysis with the broadest statute alleged by Yost, the New York City Human Rights Law (NYCHRL), N.Y.C. Admin. Code §§ 8-502 et seq.
The court concluded that Yost had failed to plausibly plead a sexual harassment claim under the NYCHRL. Accordingly she should not be permitted to reap the benefits (from her standpoint) of the EFAA. If Yost were permitted to litigate her claims in court, they almost certainly would not have survived a motion to dismiss.
Next in Judge Engelmayer’s analysis, given that Yost’s claims of sexual harassment were not plausibly pled, was the issue of whether the EFAA allows a party to circumvent arbitration by merely alleging conduct that constitutes sexual harassment.
Yost argued that even an implausibly pled claim should not bar application of the EFAA, provided the claim was not “sanctionably frivolous”—giving credence to fears of the defense bar, when the EFAA was enacted, that the act would be used strategically as a loophole to circumvent arbitration compelled by an employment agreement. The court elucidated that only viably pled allegations that would survive the dismissal threshold of litigation would effectuate the purpose of the EFAA to “empower sexual harassment claimants to pursue their claims in a judicial, rather than arbitral, forum.” As the court explained, “[a]fter the dismissal of all sexual harassment claim(s) for failure to meet the plausibility standard, . . . that purpose is not served by requiring the remaining (that is, non-sexual harassment) claims in the case to be litigated in court, in the face of a binding arbitration agreement.”
The result in Yost is, if a sexual harassment or sexual assault claim would not survive a motion to dismiss, merely alleging one will not render the arbitration agreement unenforceable.
Johnson: A plausibly pled harassment claim renders the arbitration agreement unenforceable as to the entire case.
In Johnson, the plaintiff asserted claims of sexual harassment, along with other claims alleging that he was subjected to disparate treatment, including race discrimination, pay discrimination, whistleblower retaliation, and intentional infliction of emotional distress (much as Yost pled).
The hurdle confronting Johnson—to establish a plausibly pled sexual harassment claim—was easier for him to overcome than it was for Yost. The NYCHRL, the same statute Yost lost under, was also the most lenient statute alleged by Johnson. The operative complaint alleged that “Yorio repeatedly pressured Johnson to . . . have sex with colleagues, including herself, or with clients—despite Johnson’s having repeatedly asked her to stop.” The court concluded that these allegations plausibly pled a claim of sexual harassment under the NYCHRL and that the EFAA therefore barred arbitration of that claim.
The court then turned to the issue of whether the arbitration clause was unenforceable as to the sexual harassment claims only or as to the entire case.
The EFAA renders arbitration agreements unenforceable “with respect to a case which is filed under Federal, Tribal, or State law and relates to . . . the sexual harassment dispute.” 9 U.S.C. § 402(a) (emphasis added). The court focused on the act’s use of the term “case.” The court noted that, under the FAA, “‘if a dispute presents multiple claims, some arbitrable and some not, the former must be sent to arbitration even if this will lead to piecemeal litigation.’” Johnson, No. 22 Civ. 6669 (PAE), slip op. at 37 (quoting KPMG LLP v. Cocchi, 565 U.S. 18, 19 (2011)). Hence, because Congress used the word “case” instead of “claim,” the court in Johnson concluded that Congress must have intended for the entirety of the case to be decided by a court, thereby making the arbitration agreement unenforceable as to any claim in the case. Because Johnson had a plausibly pled a claim of harassment, the pre-dispute arbitration agreement was unenforceable with respect to the entire case relating to that dispute, and the whole case remained in court.
In a footnote, the court in Johnson stated that it 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.” Id. at 40 n.23. It was sufficient in the court’s view, without analyzing whether the harassment and non-harassment claims before it were “related” in any factual sense, that “Johnson’s claims against Everyrealm and its executives all arise from his employment at Everyrealm and are clearly properly joined in a common lawsuit.”
Mera: Arbitration Agreement Invalid Only for Sexual Harassment Claims; Wage-Hour Claims Sent to Arbitration
In June 2023, another decision of the Southern District of New York provided some guidance for identifying claims that are so “far afield” from the harassment claims as to put them beyond the reach of the EFAA and require their arbitration, while the harassment claims remain in court. In Mera v. SA Hospitality Group, LLC, No. 1:23-cv-03492(PGG)(SDA) (S.D.N.Y. June 3, 2023), Danila Mera asserted claims under the Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL) arising from alleged unpaid wages, as well as claims under the New York State Human Rights Law (NYSHRL) and NYCHRL arising from an alleged hostile work environment created by sexual orientation discrimination.
Mera alleged that his employer had failed to address constant harassment and abuse by his coworkers and a manager on the basis of his sexual orientation. His allegations detailed several incidents that allegedly occurred after June 2022 (three months after the EFAA’s enactment), including alleged inappropriate homophobic comments directed to him and inappropriate touching. The court readily concluded that these allegations were sufficient to raise “a dispute relating to conduct that is alleged to constitute sexual harassment” under the NYSHRL and thus were within the scope of the EFAA. Mera’s arbitration agreement therefore was unenforceable as to alleged hostile work environment claims of sexual orientation discrimination under the NYSHRL and NYCHRL.
The court, however, disagreed with Mera’s contention (successfully asserted by the plaintiff in Johnson) that his arbitration agreement was unenforceable, not only as to his sexual harassment–related claims but as to his entire case. The court compelled arbitration of Mera’s wage-hour claims under the FLSA and NYLL.
The court in Mera reasoned that, under the EFAA, “an arbitration agreement executed by an individual alleging conduct constituting a sexual harassment dispute is unenforceable only to the extent that the case filed by such individual ‘relates to’ the sexual harassment dispute” as provided by 9 U.S.C. § 402(a)—“in other words, only with respect to the claims in the case that relate to the sexual harassment dispute.” “To hold otherwise,” the court concluded, “would permit a plaintiff to elude a binding arbitration agreement with respect to wholly unrelated claims affecting a broad group of individuals having nothing to do with the particular sexual harassment affecting the plaintiff alone.”
Distinguishing Johnson, the court in Mera noted that the plaintiff in Johnson had alleged that he was singled out for disparate treatment in the form of not only sexual harassment but also race discrimination (including pay discrimination) and retaliation. Mera, by contrast, alleged for his non-harassment, wage-hour claims that all non-exempt employees were subjected to the same unlawful wage practices. Unlike Johnson’s disparate treatment claims, Mera’s wage-hour claims were not unique to him.
The rationale is Mera respects the intent of the EFAA and does not permit abuse of the EFAA to circumvent an otherwise enforceable arbitration agreement. It would be unjust to allow Mera to have all claims litigated, when others who may be alleging the same wage-hour complaints must proceed to arbitration. This allows for equal treatment of all employees for any claim that does not involve facts unique to a particular individual.
Olivieri: Continuing Violation Doctrine Renders Arbitration Agreement Unenforceable
Shortly after the decisions in Johnson and Yost, the Eastern District of New York vacated a March 28, 2022, order that had sent Patricia Olivieri’s claims to arbitration, instead concluding that her claims would now be adjudicated in court. Olivieri v. Stifel, Nicolaus & Co., No. 21-CV-0046 (JMA) (ARL) (E.D.N.Y. Mar. 31, 2023).
In January 2021, Olivieri had asserted claims of sexual harassment, hostile work environment, and retaliation under the NYSHRL. In August 2022, Olivieri sought leave to file an amended complaint, alleging that she was subjected to a retaliatory, hostile work environment continuing through and beyond March 3, 2022—the date of the EFAA’s enactment—in continuation of her previously asserted claims. The court held that the “continuing violation” doctrine applied to Olivieri’s retaliation claims. As an alleged continuing violation, these claims accrued “on the day of the last act in furtherance of the violation.” By virtue of the defendants’ alleged ongoing conduct, the retaliation claims continued to accrue after the EFAA’s March 3, 2022, enactment. The court concluded that the proposed amended complaint “plausibly assert[ed] claims that ‘relate to’ [Olivieri’s] underlying sexual harassment claims, as required by the EFAA, but hostile work environment claims are, by their very nature, claims of ongoing and continuing conduct.”
Accordingly, the court held that Olivieri’s arbitration agreement was unenforceable under the EFAA. Unlike the situation later addressed in Mera, all of Olivieri’s claims arose from, and were allegedly in continuation of, the conduct alleged in the original sexual harassment claim.
The Interpretation and Application of the EFAA Remains Unsettled
Overall, the framework laid out in these New York decisions is fair. Only plausibly pled sexual harassment or sexual assault claims that would survive dismissal when evaluated under the most lenient law should thwart arbitration. Otherwise, an already overwhelmed court system would become even more overwhelmed, simply to address potentially frivolous allegations lodged for strategic reasons.
These cases show that what remains unresolved is the greater issue of what to do when there is a plausibly pled claim. Within the same district in New York, in one case, the entire arbitration agreement was held unenforceable and the whole case was kept in court, while in another case, parts were parsed out for ligation and arbitration. The rationale of Johnson—an exhaustive textual analysis of word choices—is not entirely convincing and might not be the winner at the end of the day, though it was a good start. Considering the great weight given in Johnson to Congress’s word selections, if there is any requirement for membership in Congress, it may be that one must be a clever wordsmith and have an astounding grasp of English writing. The rationale of Mera does seem to be the safer bet, relying more on an objective analysis of the facts and intent of the EFAA, and analyzing more thoroughly the “relatedness,” or not, of the non-harassment claims to the harassment claims. Rounding it all out, Olivieri demonstrates that the “continuing violation” doctrine may provide a sound basis for maintaining an “entire case” in court.
There are more wrinkles to come that will affect the analysis. If enacted, the proposed Ending Forced Arbitration of Race Discrimination Act of 2023 (EFARDA) would amend the FAA further to render pre-dispute arbitration agreements unenforceable in race discrimination disputes, on the model of the EFAA. It is unlikely that the courts will have resolved how to interpret and apply the EFAA any time soon or, at the least, prior to any enactment of the EFARDA.