The New Jersey Appellate Division has issued a landmark ruling clarifying the scope of the federal Ending Forced Arbitration of Sexual Assault and Harassment Act of 2021 (EFAA), finding that if a lawsuit involves a viable sexual harassment claim, the EFAA renders pre-dispute arbitration agreements unenforceable for the *entire case*, not just the specific harassment claims.
In a consolidated opinion addressing two separate appeals, the court rejected the approach taken by lower courts, which had attempted to “bifurcate” or split the lawsuits, sending non-harassment claims to arbitration while keeping sexual harassment claims in court. This decision marks the first time a New Jersey appellate court has interpreted the EFAA, siding with the majority of federal and state courts that have interpreted the law broadly.
Timeliness of Harassment Claims Upheld
The consolidated appeals involved Megan McDermott and Geraldine Rivera-Santana, both of whom alleged workplace sexual harassment under the New Jersey Law Against Discrimination (LAD).
Before addressing the EFAA interpretation, the Appellate Division first considered the defendants’ cross-appeals, which argued that the plaintiffs’ sexual harassment claims were time-barred under the LAD’s two-year statute of limitations.
The court affirmed the lower courts’ decisions, ruling that both McDermott and Rivera-Santana had successfully pleaded claims falling under the “continuing violation doctrine.” This doctrine allows a plaintiff alleging a pattern of pervasive conduct, such as a hostile work environment, to file suit based on the date the *last* act occurred, even if earlier component acts fell outside the two-year window. Since both plaintiffs alleged ongoing harassment that continued until near their respective departures from employment, their claims were deemed timely.
The Crux: Interpreting “Case” vs. “Claim” Under the EFAA
The central issue was how to apply the EFAA, which states that pre-dispute arbitration agreements are unenforceable “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.” (9 U.S.C. § 402(a)).
The trial courts in both instances had followed a more restrictive interpretation, relying partially on a single, non-binding federal decision (*Mera v. SA Hospitality Group*). They ruled that the EFAA only barred arbitration for the specific LAD sexual harassment claims, while forcing the plaintiffs’ other claims—such as breach of contract, wage disputes, or gender discrimination claims deemed factually separate—into arbitration.
Judge Natali, writing for the appellate panel, strongly disagreed with this bifurcation. The court emphasized the plain language of the statute, noting that Congress specifically chose the broad term “case” in Section 402(a), while using the narrower term “claim” in other sections of the EFAA (like defining when the Act became effective).
“If Congress wanted to adopt defendants’ and the courts’ interpretation, it could have used the term ‘claim’ rather than ‘case’ or emphasized that arbitration would only be invalidated as to claims relating to the sexual harassment dispute, but it did neither of these things,” the opinion stated.
The court adopted the reasoning from cases like *Johnson v. Everyrealm*, which holds that if a case contains at least one viable sexual harassment dispute, the arbitration provision is voided for the entire case. This interpretation aligns with the EFAA’s purpose: to restore access to justice for victims by preventing them from being forced into private arbitration for their entire dispute simply because a harassment allegation exists.
The court found that the lower courts erred by trying to harmonize the EFAA with the Federal Arbitration Act’s (FAA) general policy favoring arbitration. The EFAA contains a “notwithstanding” clause, signaling that its provisions override conflicting aspects of the FAA when sexual harassment is involved.
Furthermore, the court dismissed the defendants’ argument that this broad reading of the EFAA would encourage “strategic pleading” of fabricated harassment claims to avoid arbitration. The court suggested that any such bad-faith claims would likely be “ferreted out” by the court through standard motions practice.
Conclusion and Remaining Issues
The Appellate Division reversed the portions of the lower court orders that compelled arbitration for the non-harassment claims in both McDermott’s and Rivera-Santana’s lawsuits. The court affirmed the lower courts’ decisions that the sexual harassment claims themselves were timely filed under the LAD.
Because the court determined that the EFAA voids arbitration for the entire case, several secondary issues raised by McDermott—including the unconscionability of specific arbitration agreement provisions like fee-shifting clauses—became moot and were not addressed.
The opinion concludes by affirming in part and reversing in part the decisions of the Law Division, ensuring that McDermott and Rivera-Santana can pursue all their related claims in court alongside their sexual harassment allegations.