John v. Everyrealm
Date of Order – 24th February 2023
Court: U.S District Court for the Southern District of New York
An Arbitration Clause in Cases of Sexual Harassment Cases is Unenforceable- United States of America
Validity of arbitration clauses, especially in sexual harassment cases have raised considerable debate due to his enforceability and its implications in United States of America. These arbitration clauses provide an avenue for the employers to silence the victims and the lack of transparency in the process. However, in this landmark the arbitrability open arbitration clause in employment contracts with respect to sexual harassment was challenged.
Facts
Y, a company selling “real estate” in the metaverse, hired X, a former NFL and Canadian Football League player to develop strategic partnership with athletes and celebrities to increase its brand visibility.
X alleged that he was subjected to “unrelenting harassment that was unsolicited, unwanted and sexual in nature throughout his tenure with Y”.
X alleged that he was repeatedly pressured to have sex with colleagues and clients and was subjected to sexual comments.
X sued Y for race discrimination, pay discrimination, sexual harassment, race, gender and ethnicity discrimination amongst other claims.
However, X had signed a broad mandatory arbitration provision as conditions of their employment. Y thus moved for the arbitration which was opposed by X.
Law
Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act,2021 (“EFAA”). A law that amended the Federal Arbitration Act to preclude any mandatory arbitration clause for sexual harassment cases.
However, under EFAA, sexual harassment claims along with other claims can be compelled to arbitration.
Issues
- Whether the alleged conduct constituting sexual harassment will come under the ambit of EFAA?
- If such conduct does come under its ambit, does EFAA makes the entire arbitration agreement unenforceable, or only the claims of sexual harassment unenforceable?
Court’s Judgment & Reasoning
The court found that a similar case with the similar defendant existed and considered whether sexual harassment claims could be bifurcated as to allow the plaintiffs litigate their claims.
On analysis, the court found that sexual harassment allegations by X had a sufficient cause of action to plead a case for sexual harassment under municipal law and EFAA renders such arbitration clauses to be entirely unenforceable.
The court noted that EFAA directly amended the FAA and as such emphasised the legislature’s intent to override FAA’s general principle, “that cases involving both arbitrable and non-arbitrable claims must be arbitrated”. Thus, the Y’s motion to compel arbitration was denied.