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Bell Nunnally's Brent Hockaday Authors Texas Lawyer Article on #MeToo-Motivated Federal Arbitration Reform

29 Apr 2022 Latam

In a surprising move, President Joe Biden signed into law the bipartisan Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA) (https://www.congress.gov/bill/117th-congress/house-bill/4445/text?r=1&s=1). This article analyzes the law itself and looks at open-ended questions involving its scope, including how courts are likely to manage litigation involving arbitrable and non-arbitrable claims.

How did we get here? 

The EFAA’s enactment is significant because employers have regularly made mandatory arbitration with their workforces a condition of employment. Employees typically enter these arbitration agreements at the outset of employment and, generally, courts favor their enforcement. In recent years, however, legislators on each end of the aisle have become attuned to the societal focus on mistreatment tied to sex and the desire for a growing number of their constituents to bring to light certain egregious practices. Prominent advocates who have worked with lawmakers on this issue include former Fox News anchor Gretchen Carlson, who made headlines when she successfully circumvented her arbitration agreement in her sexual harassment lawsuit stemming from her work at Fox News (https://conferences.shrm.org/presenter/gretchen-carlson).

What is the new state of the law? 

The EFAA itself amends the Federal Arbitration Act (FAA) to provide: “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.” Effectively, the EFAA prohibits compulsory arbitration of sexual harassment or civil sexual assault cases arising from workplace conduct. Instead, the EFAA gives the employee the choice to go to court to pursue these specific claims despite the existence of an overarching agreement to arbitrate all claims.

How will courts manage lawsuits containing arbitrable and non-arbitrable claims?

In the shadow of this legislation lurks open questions concerning how courts will address lawsuits containing sexual harassment or assault (non-arbitrable) claims when plaintiffs pursue them alongside claims subject to arbitration in the same lawsuit. As seasoned employment litigators know, it is not uncommon for plaintiffs pursing sexual harassment claims to do so in tandem with claims such as retaliation, age discrimination or wage and hour violations to name a few.

The FAA, 9 U.S.C. § 3, which governs the enforcement of many employment arbitration agreements, requires the courts to stay any proceedings with arbitrable claims pending the arbitration. Meaning, when lawsuits contain claims that are both arbitrable and non-arbitrable, the FAA requires a stay of the arbitrable claims in the trial court while those arbitrable claims proceed to arbitration. KPMG LLP v. Cocchi, 565 U.S. 18, 22 (2011). But, current Fifth Circuit law recognizes a trial court’s discretion to also stay the remaining non-arbitrable claims pending adjudication of the arbitrable claims in arbitration. Courts undertaking this consideration determine whether: (1) the arbitrable and non-arbitrable claims involve the same operative facts; (2) the arbitrable and non-arbitrable claims are “inherently inseparable;” and (3) the litigation would have a “critical impact” on the arbitration. Rainer DSC 1, L.L.C. v. Rainter Capital Management, 828 F.3d 356, 360 (5th Cir. 2016). The crux of the inquiry centers on “whether proceeding with litigation will destroy … the right to a meaningful arbitration.” Waste Management v. Residuos Industriales Multiquim, S.A. de C.V., 372 F.3d 339, 343 (5th Cir. 2004).

What does this mean for future employment lawsuits where only some claims are subject to the EFAA exclusions?

A recent case from the Northern District of Texas, Vuoncino v. Forterra, No. 3:21-CV-01046-K, (N.D. Tex. Feb. 28, 2022), provides some guidance as to how courts may determine the issue of whether to stay non-arbitrable claims subject to the EFAA when there are arbitrable claims in the same lawsuit.

The Forterra case involves a dispute with multiple claims that are subject to an arbitration agreement, as well as a non-arbitrable retaliation claim under the Sarbanes-Oxley Act (SOX). Like the EFAA’s sexual harassment and sexual assault arbitration exclusion, SOX retaliation claims are expressly exempt from predispute arbitration agreements, 18 U.S.C § 1514A(e)(2).

In Forterra, the Northern District refused the defendants’ request to stay the SOX retaliation claim and allowed the plaintiff to pursue that SOX claim concurrently in court while the parties arbitrated the remaining claims in arbitration. Even though the underlying facts giving rise to the SOX claim and were similar to some of the facts giving rise to the arbitrable claims, the Forterra court reasoned that the plaintiff’s interest in having a direct path to court for his SOX claim outweighed the defendants’ interest in enforcing their right to “meaningful arbitration.” Critical to that decision was SOX’s explicit arbitration exclusion language, which is similar to the arbitration exclusion of the EFAA.

Because the EFAA extends to any state law relating to sexual assault or sexual harassment, employers whose arbitration agreements are subject to the FAA will not evade the EFAA’s exclusions where plaintiffs pursue claims under the Texas Labor Code or torts under state law. A full preemption analysis would be required for those agreements subject to the Texas General Arbitration Act exclusively.

What should employers take away?

Regardless of the venue, the Forterra decision and its line of reasoning should alert employers with mandatory arbitration agreements that they face a real possibility of concurrent, bilateral litigation and arbitration of lawsuits involving non-arbitrable sexual harassment or assault and claims subject to an arbitration agreement. It is unlikely this Congress will make any further effort to amend the FAA. However, any significant change to the legislature following this year’s midterm elections could lead to further efforts to chip away at the FAA.