A recent decision from the 6th U.S. Circuit Court of Appeals has offered new guidance on when employers can compel arbitration for sexual harassment claims, particularly when the alleged conduct occurred before the March 3, 2022, enactment of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA).

In Memmer v. United Wholesale Mortgage, LLC, a divided 6th Circuit panel held that the EFAA could prevent forced arbitration even if the harassment itself happened before the Act became law, depending on when the “dispute” or “claim” formally arose.

The EFAA and its intent

The EFAA amended the Federal Arbitration Act to prohibit employers from forcing employees into arbitration for sexual assault or sexual harassment claims.

Instead, the Act gives employees the choice to pursue such claims in court, even if they previously signed an arbitration agreement.

The EFAA applies to “any dispute or claim that arises or accrues on or after the date of enactment of this Act [March 3, 2022].” The crucial question has been how to interpret “arises or accrues.”

The Memmer case

The plaintiff, a former underwriter at United Wholesale Mortgage (UWM), alleged that she experienced sexual harassment and other forms of discrimination during her employment, which ended in 2021, several months before the EFAA’s effective date.

When she later filed a lawsuit, UWM moved to compel arbitration based on her employment agreement, arguing the EFAA didn’t apply because the alleged harassment occurred before March 3, 2022. A federal district court initially agreed with UWM.

However, the 6th Circuit reversed the decision. The appellate court, in its majority opinion, focused on Congress’s use of “dispute or claim” in the EFAA.

The court reasoned that:

A “claim” typically accrues when the underlying conduct (the harassment) occurs and an injury is formed; and
A “dispute,” however, can arise later. The court noted that there isn’t a set legal framework for when a dispute arises, suggesting it happens when the parties become adverse. That could be when an employee complains internally, an EEOC charge is filed, or a lawsuit is initiated.

In the 6th Circuit case, although the plaintiff’s alleged harassment and departure from UWM predated the EFAA, she filed her EEOC charge in April 2022 and her lawsuit a year later – both after the EFAA’s enactment. The court concluded that while her “claim” might have accrued before the EFAA, her “dispute” with UWM may have arisen after the Act took effect.

The case was remanded to the district court to determine the specific date the dispute arose, based on the unique context of the case.

Implications

The Memmer decision underscores that employers cannot solely rely on the timing of alleged pre-EFAA conduct or an employee’s separation date to compel arbitration in sexual harassment cases.

The 6th Circuit’s interpretation aligns with similar rulings from the 2nd, 3rd, and 8th Circuits, suggesting a growing consensus on this issue.