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This article is part of our 2025 Labor & Employment Roundup. To read the other articles, click below:
Recent and Upcoming Legislation Impacting Employers in 2025
Impact of a Second Trump Presidency on Biden-Era NLRB Decisions
2024 PAGA Updates
Recent court rulings under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) suggest that if a sexual harassment claim is included in a case, the entire case may bypass arbitration—even for unrelated claims like wage and hour violations. This development creates new risks for employers, as plaintiffs may use sexual harassment claims strategically to avoid arbitration.
What this means for employers: Employers should prepare for increased challenges to arbitration agreements, particularly in cases involving sexual harassment claims. Ensuring compliance with discrimination, harassment, and retaliation policies is essential to mitigate risks. Additionally, employers should closely review and update arbitration agreements to account for these evolving legal interpretations and consider alternative strategies to manage litigation exposure effectively.
What Employers Should Know
Most well written arbitration agreement contain “Class Action Waivers.” Class action waivers in arbitration agreements are invaluable in protecting employers against costly class action lawsuits. Two recent decisions, however, suggest that such waivers may be unenforceable where a plaintiff asserts a single sexual harassment claim together with wage and hour class claims – a particularly troubling development as sexual harassment claims are notoriously difficult to dispose of at the pleading stage. This leaves the door open for plaintiff’s lawyers to attempt to assert sexual harassment claims for the sole purpose of avoiding dismissal of wage and hour class claims and frustrate the key benefit to employers of using arbitration agreements.
In March 2022, Congress enacted the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA or the “Act”). The EFAA amends the Federal Arbitration Act (FAA) and allows current and former employees alleging sexual assault and sexual harassment to elect to pursue their claims in court even if they previously entered into an enforceable arbitration agreement. The FAA, and therefore the EFAA, generally preempts state law and applies to any contract that evidences a transaction involving interstate commerce. The term “transaction involving interstate commerce” is broadly construed; with some exceptions, it includes virtually all arbitration agreements in the employment context.
Significantly, while the EFAA focuses on sexual assault and sexual harassment claims, it uses the word “case,” not “claim” or “cause of action” in identifying when it operates to allow a party to a binding arbitration agreement to proceed in court, rather than in arbitration: “[N]o 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 harassment dispute.” 9 U.S.C. Section 402(a) (emphasis added). This has led to a split of authority as to whether claims unrelated to sexual assault or sexual harassment that are asserted in the same action as sexual assault or sexual harassment claims are also exempt from mandatory arbitration.
While some courts have concluded that the EFAA does not preclude employers from enforcing binding arbitration agreements as to causes of action unrelated to sexual assault or sexual harassment, the California Courts of Appeal have, unsurprisingly, opted for the most employee-friendly interpretation. In Doe v. Second Street Corp., decided in Septmeber 2024, the plaintiff sued her former employer and alleged causes of action for sexual harassment, discrimination, and wage and hour violations. The Court of Appeal for the Second Appellate District affirmed the trial court’s order denying the employer’s motion to compel arbitration of the plaintiff’s non-sexual harassment claims on the grounds that the plain language of the EFAA invalidated the parties’ arbitration agreement as to the entire case.
Similarly, in Liu v. Miniso Depot CA, Inc., decided in October 2024, the plaintiff filed suit against her former employer alleging claims for sexual harassment and wage and hour violations based on her alleged misclassification as an exempt employee. Even though the wage and hour claims were entirely unrelated to the sexual harassment claims, the Court of Appeal for the Second Appellate District held that, because the plaintiff’s case included at least one claim of sexual harassment, the entire case was exempt from the provisions of the arbitration agreement between the plaintiff and her former employer.
It remains to be seen how courts will interpret the EFAA when an employee asserts sexual harassment claims and non-individual (i.e., class or representative) claims in the same action; with a new administration, it is also possible that lawmakers will amend the EFAA and address the ambiguous language that has allowed for such a broad interpretation. In the interim, we expect that plaintiffs’ attorneys will make every effort to allege sexual harassment together with wage and hour claims to bypass arbitration agreements. As such, maintaining compliant policies and practices regarding discrimination, harassment, and retaliation is of critical importance.
Author: Brianna Frazier Earley
About JMBM’s Labor & Employment Practice
JMBM’s Labor and Employment attorneys counsel businesses and management on workplace issues, helping to establish policies that address problems and reduce job-related lawsuits. We act quickly to resolve claims and aggressively defend our clients in all federal and state courts, before the Department of Labor, the NLRB, and other federal, state and local agencies, as well as in private arbitration forums. We represent employers in collective bargaining negotiations and arbitration.
This update is provided to our clients, business associates and friends for informational purposes only. Legal advice should be based on your specific situation and provided by a qualified attorney.
