A law enacted in 2022 that allows people alleging sexual assault or sexual harassment to opt out of pre-dispute arbitration agreements has altered the litigation landscape for enforcing those agreements. Since its enactment, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA), an amendment to the Federal Arbitration Act (FAA), has impacted the enforceability of arbitration agreements in certain employment-related disputes throughout the country. Under the EFAA, those opting out of pre-dispute arbitration agreements can instead bring their claims straight to court—a notable shift from the long-standing presumption in favor of arbitration under the FAA. However, federal courts have diverged on how strictly to apply pleading standards when determining whether the EFAA applies and, consequently, whether arbitration can be compelled. This jurisdictional divide raises significant implications for litigants and employers alike.
The FAA’s and EFAA’s Impact On Arbitration Agreements
Courts have long held that the FAA requires that any doubts concerning the scope of arbitrable issues be resolved in favor of arbitration where there is no dispute as to the making of the arbitration agreement at issue. Under the EFAA, however, employees who sign an arbitration agreement and later allege a “sexual harassment dispute” or “sexual assault dispute” may choose to bypass arbitration and instead bring their claims straight to court, regardless of whether the arbitration agreement is otherwise binding.
The threshold question in these cases—whether the plaintiff’s claim constitutes a “sexual harassment dispute” or “sexual assault dispute” that triggers the EFAA—is for the court, not an arbitrator. However, the EFAA does not set a specific standard that a plaintiff must meet to allege a dispute covered by the EFAA, and the courts have yet to come up with any uniform approach for identifying the appropriate standard. To the contrary, the split approaches taken by the federal district courts raise significant uncertainties on the crucial question of what a plaintiff must do to demonstrate that their claim falls within the purview of the EFAA and precludes arbitration.
The Two Approaches
Most courts confronted with this question have required that the sexual harassment or assault claim in the complaint meet the well-established federal Twombly/Iqbal “plausibility” standard in order to block a valid arbitration agreement. These courts view the plausibility standard as striking an appropriate balance between the EFAA’s purpose of providing sexual harassment claimants with a judicial forum and the FAA’s well-established mandate that favors arbitration.
The other handful of courts that have rejected the plausibility requirement have adopted a less stringent standard requiring only that plaintiffs plead nonfrivolous claims relating to sexual assault or sexual harassment. These courts do not require plaintiffs to show that their allegations plausibly state a claim if challenged on a motion to dismiss. They instead reason that the sufficiency of the claims should be reserved for proper merits adjudication.
Jurisdictional Split on EFAA Pleading Standards in Federal Courts
The split among the federal district courts is seen not only across the federal appeals courts. District courts within the same circuit are split, and even judges within the same district court are split. For example, within the U.S. District Court for the Southern District of New York, at least four decisions have applied the plausibility standard and at least one has applied the less stringent nonfrivolous claims standard.
The split among the district courts within the Ninth Circuit Court of Appeals is even more diverse, with the U.S. District Court for the Northern District of California applying the plausibility standard, the Eastern District of California applying the less stringent standard, and the Central District of California applying both the plausibility standard and the less stringent standard.
Several other federal district courts have agreed with the majority and applied the plausibility standard, including the U.S. District Courts for the District of New Jersey and the Middle District of Pennsylvania in the Third Circuit Court of Appeals, the U.S. District Court for the Southern District of Iowa in the Eighth Circuit Court of Appeals, and the U.S. District Court for the Middle District of Florida in the Eleventh Circuit.
Takeaways for Employers
As courts continue to interpret the EFAA, the lack of uniformity around the pleading standard presents real legal and strategic challenges for employers. Employers should proactively adapt policies, contracts, and dispute resolution practices to account for this evolving legal landscape.
As we’ve already seen, this growing jurisdictional split has created inconsistent outcomes depending on the jurisdiction. This means that while an arbitration agreement may be enforceable in one federal district, that same agreement may be unenforceable in another, depending on the pleading standard applied.
Employers facing claims in jurisdictions applying the plausibility standard are more likely to see more favorable rulings on motions to compel arbitration in light of the higher burden placed on plaintiffs to plausibly allege their sexual harassment or sexual assault claim. On the other hand, employers in jurisdictions that apply the lower, nonfrivolous claims standard are more likely to find themselves with an invalid arbitration agreement and left to defend against claims constituting a sexual harassment dispute or sexual assault dispute in court from the outset.
Unless and until the federal appellate courts weigh in on the applicable standard for their respective jurisdictions, this uncertainty for employers in enforcing arbitration agreements and implications for litigation strategy, risk exposure, and internal dispute resolution policies will persist. Given the varying viewpoints of the courts, employers may also see an increase in forum shopping by plaintiffs. To help manage the uncertainties surrounding the application of the EFAA and potential implications for litigation strategy, employers may want to track jurisdiction-specific rulings and any potential appellate decisions that may resolve the split.
Given the varying opinions in the federal courts on this issue, Venable will continue to monitor developments in the case law under the EFAA. Employers are encouraged to contact the authors of this article or any other attorney in Venable’s Labor and Employment Group with any questions regarding these ongoing legal developments.