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Oklahoma City University
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Friday, June 30, 2023

Tamar Meshel on the Revisions to the FAA

TamarWe are delighted to welcome Tamar Meshel (right) back as a guest blogger!

Dr. Tamar Meshel is an Associate Professor at the University of Alberta Faculty of Law. She researches, teaches, and consults primarily in the areas of domestic and international arbitration and her work has been cited by the Supreme Court of Canada, the Supreme Court of Israel, and the Delaware Court of Chancery, as well as by numerous scholars.

The New Chapter in the Life of the FAA

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (aka EFASASHA, EFASA, or EFAA)—codified at 9 U.S.C. §§ 401–02 (Chapter 4 of the FAA)—came into effect on March 3, 2022. It is the first substantive limit placed by Congress on the scope of the FAA since the statute was enacted nearly 100 years ago. The Act provides that “at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute . . . no predispute arbitration agreement . . . 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” (§ 402(a)).

The Act also renders three arbitration principles inapplicable in sexual assault and sexual harassment disputes. First, it permits the unilateral revocation of a “joint, class, or collective action” waiver (§ 402(a)), which would otherwise be enforceable pursuant to AT&T Mobility LLC v. Concepcion. Second, it requires courts to decide the validity and enforceability of an arbitration agreement even where a party challenges the underlying contract rather than the arbitration clause (§ 402(b)), a challenge that would otherwise be decided by the arbitrator pursuant to the severability principle and Prima Paint Corp. v. Flood & Conklin Mfg. Co. Third, it requires courts to decide the validity and enforceability of an arbitration agreement even where the parties intended to delegate this determination to the arbitrator (§ 402(b)), a delegation that would otherwise be enforced pursuant to Rent-A-Center, West, Inc. v. Jackson.

At the same time, the Act gives rise to many questions that courts must now grapple with:

  1. Chapter 4’s application to non-employment disputes

The most obvious context to which Chapter 4 applies is employment. Indeed, out of about two dozen cases that have considered Chapter 4 (that I’ve examined), all but two were in the employment context. In the two non-employment cases the plaintiffs were a patient in a care facility (Ferrell v. Imperial Care Center LLC) and a college student. In the former the court explicitly held that Chapter 4 applies to sexual assault/harassment claims that are not work-related or that do not arise from employment contracts. In the latter the court did not consider this question, because it found Chapter 4 temporally inapplicable (see below).

While the congressional record suggests a focus on employment disputes, nothing in the language of Chapter 4 restricts it to that context. So it is likely to be applicable in any case involving a sexual assault and/or sexual harassment dispute.

  1. Chapter 4’s temporal application

Section 3 of the Act provides that it “shall apply with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act,” which is March 3, 2022. The courts have unanimously interpreted this provision to mean that Chapter 4 does not apply retroactively. Creative attempts to establish an “accrual” date post-March 3, 2022—for instance, when the defendant filed its motion to compel arbitration or when the Equal Employment Opportunity Commission issued a notice of right to sue—have failed. Courts have also rejected the following arguments: 1) that Chapter 4 eliminates the FAA’s pre-emption of state law that prohibits arbitration of sexual assault/harassment claims even if these “accrued” prior to March 3, 2022; 2) that Chapter 4 evidences a public policy that disfavours arbitration of sexual harassment/assault claims accruing before this date; 3) that Chapter 4 renders agreements to arbitrate such claims per se unconscionable; and 4) that individual claims accruing before March 3, 2022 may be saved by asserting class-wide claims on behalf of potential plaintiffs who may have been harmed after that date.

However, there is disagreement over when would be latest “accrual” date possible for the purpose of applying Chapter 4. Some courts have found the latest possible date to be when the plaintiff filed the lawsuit, while others have found that date to be when the alleged conduct occurred. In one case, Chapter 4 was found applicable to an alleged continuing violation (hostile work environment and retaliatory conduct) that spanned both before and after March 3, 2022. The U.S. District Court of the Eastern District of New York held that pursuant to the “continuing violation” doctrine, the plaintiff’s claims “accrue on the day of the last act in furtherance of the violation,” which in the context of the hostile work environment and retaliatory conduct claims continued after March 3, 2022.   

It also remains unclear what, if any, is the difference between a “dispute” and a “claim” and between “arises” and “accrues” in § 3. For instance, the U.S. District Court for the Southern District of New York found no meaningful difference and suggested that the Act refers to both “claims” and “disputes” simply “in order encompass various kinds of proceedings.” The U.S. District Court for the Southern District of Florida (in Hodgin v. Intensive Care Consortium Inc.) disagreed and separately considered whether the plaintiff’s “claim” had “accrued” (meaning she had a “complete and present cause of action”) before March 3, 2022 and whether her “dispute” had “arisen” (meaning there was a “disagreement, not just the existence of an injury) before that date.

While the “accrual” date has been hotly contested in the courts, as time passes this issue will become less relevant to the application of Chapter 4.

  1. Standard for pleading a sexual assault/harassment dispute

SDNYIn three cases, the U.S. District Court for the Southern District of New York has considered the standard that a plaintiff must meet in order for § 402(a) to invalidate an arbitration agreement. The court in some of these cases also considered whether meeting this standard should prohibit arbitration of the entire “case” or only of the sexual assault/harassment claims.  

Johnson v. Everyrealm and Yost v. Everyrealm involved claims brought by two former employees against the same employer for sexual harassment under the New York State Human Rights Law and the New York City Human Rights Law (which the court found to qualify as “state law” under § 402(a)), as well as for whistleblower retaliation and intentional infliction of emotional distress. Mera v. SA Hospitality Group involved claims for sexual harassment under the same New York laws as well as wage and hour claims brought under the Fair Labor Standards Act and the New York Labor Law on behalf of a group of employees.   

In all three cases, the district court held that the plaintiffs were required to meet the FRCP Rule 12(b)(6) standard of plausibility with respect to their sexual harassment claims, and that once that standard was met, all “related” claims in the action would also be non-arbitrable.

In Johnson, Judge Engelmayer held that the plaintiff had plausibly pled a claim of sexual harassment under the New York City Human Rights Law and therefore Chapter 4 applied. Judge Engelmayer acknowledged that the FAA permits the splitting of arbitrable from non-arbitrable claims. Yet he also found a “contrary congressional command” in § 402(a), which makes a pre-dispute arbitration agreement invalid and unenforceable “with respect to a case which is filed under Federal, Tribal, or State law and relates to the ... sexual harassment dispute.” Therefore, Judge Engelmayer concluded that a well-pled sexual harassment claim makes an arbitration clause unenforceable “as to the other claims in the case.” He noted, however, that because the plaintiff’s claims all arose from his employment, he was not considering whether “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.”   

Applying these principles in Yost, Judge Engelmayer found that the plaintiff’s factual allegations in support of a claim of sexual harassment were “threadbare” and failed to allege a “plausible claim” of sexual harassment under the New York City Human Rights Law. Judge Engelmayer therefore dismissed the plaintiff’s sexual harassment claims. He then held that, as a result, Chapter 4 could not prevent the arbitration of the remaining claims.  

Finally, in Mera, Judge Aaron found that the plaintiff had plausibly pled a claim of sexual harassment under the New York State Human Rights Law, and therefore that claim could not be arbitrated. However, he found that § 402(a) rendered arbitration agreements unenforceable “only with respect to the claims in the case that relate to the sexual harassment dispute.” Unlike in Johnson, the plaintiff’s wage and hour claims in Mera did not “relate in any way to the sexual harassment dispute.” Therefore, the plaintiff was compelled to arbitrate those claims. The action was stayed with respect to the wage and hour claims pending arbitration, while the sexual harassment claims proceeded in court.

The fate of claims joined with a sexual assault/harassment dispute may thus turn on how “related” they are to that dispute. This means that claims that are not directly sexual assault/harassment claims but are related to the underlying conduct may become non-arbitrable as long as the sexual assault/harassment claims are plausibly plead in the same “case”. In contrast, plaintiffs may not be able to easily bootstrap claims that are entirely unrelated to the underlying conduct or to the plaintiff’s sexual assault/harassment dispute in order to render them non-arbitrable.

These are still early days for FAA Chapter 4, and some of the cases discussed above are currently pending appeal. It is also important to note that neither the Act nor Chapter 4 of the FAA address other mechanisms that are used to avoid the litigation and/or the publication of conduct underlying sexual assault/harassment disputes, such as settlement agreements, confidentiality agreements, and NDAs.

https://lawprofessors.typepad.com/contractsprof_blog/2023/06/tamar-meshel-on-the-revisions-to-the-faa.html

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