Specifically, in a consolidated appeal of two separate employment cases, McDermott v. Guaranteed Rate, Inc., et al. and Rivera-Santana v. CJF Shipping, LLC, et al., -- A.3d – (N.J. Super. Court App. Div. 2025), the Appellate Division held that arbitration agreements are unenforceable whenever a lawsuit includes an adequately pled claim of sexual harassment or sexual assault because the EFAA requires that the entire case, not just harassment or assault claims, must be litigated in court.
Background
Congress passed the EFAA in February 2022, and President Biden subsequently signed it into law (P.L. 117-90) on March 2, 2022. Congress amended the Federal Arbitration Act through the EFAA such that, unless a plaintiff elected to litigate the case in arbitration, any case alleging sexual assault or sexual harassment could not be compelled to arbitration over a plaintiff's objection.
On motions to dismiss, the trial courts in each case bifurcated the claims and compelled arbitration of McDermott's and Rivera-Santana's claims that did not facially relate to the facts underpinning their claims of sexual harassment. For McDermott, this meant compelling arbitration on her claims for wage payment, breach of contract, commercial misappropriation of her likeness and tortious interference with prospective contractual relations. And for Rivera-Santana, this meant compelling arbitration on the claims relating to pregnancy discrimination.
On Appeal
On appeal, Judge Arnold Natali, writing for the Appellate Division, reversed. First, after a review of out-of-jurisdiction federal and state court decisions, Judge Natali examined Congress's use of the broad term “case” in the EFAA's provision excluding sexual assault and sexual harassment claims from arbitration against its use of the narrower term “claim” in other sections of the statute. Judge Natali held that this signaled Congress's intent to exempt the entire lawsuit from arbitration, not just specific causes of action. Second, Judge Natali rejected the trial courts' attempts to “harmonize” the EFAA with the Federal Arbitration Act by splitting claims. Once a plausible sexual harassment allegation (claim) triggers the EFAA, the arbitration agreement becomes unenforceable for the entire action (case). Lastly, Judge Natali noted that, in employment litigation, unrelated claims are often “materially and substantially informed” by the allegedly abusive employment relationship. Thus, the court held that all of McDermott's and Rivera-Santana's claims would remain in Superior Court.
Takeaways
- McDermott essentially means if a plaintiff plausibly alleges a non-arbitrable claim of sexual harassment or sexual assault while also pleading otherwise arbitrable claims, the entire case – all claims – will remain in court, and none of them can be compelled to arbitration.
- Employers should closely scrutinize claims of sexual harassment or sexual assault to ensure those claims can survive a motion to dismiss if the employer believes a claim of sexual harassment or sexual assault is frivolously asserted solely to defeat arbitration.
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