August 07, 2025|Franchise Frontlines
August 7, 2025 | U.S. District Court, Southern District of New York | Published Opinion
Executive Summary
In a significant published decision, Judge Gregory H. Woods of the U.S. District Court for the Southern District of New York addressed the scope of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”), 9 U.S.C. §§ 401–402, in a multi-plaintiff employment dispute. The plaintiffs—former sales representatives—asserted wage-and-hour claims under the Fair Labor Standards Act (“FLSA”), discrimination and retaliation claims under New York law, and breach of contract claims. Several plaintiffs alleged sexual harassment by a manager; others did not. The employer moved to compel arbitration pursuant to arbitration agreements. The court held that the EFAA renders arbitration clauses unenforceable only as to the “case” of the plaintiff alleging conduct constituting a sexual harassment dispute, not the entire proceeding involving all plaintiffs. Accordingly, the court compelled arbitration of claims brought by plaintiffs who did not allege harassment-related conduct, while permitting harassment-related plaintiffs to proceed in federal court. The decision clarifies that the EFAA does not automatically invalidate arbitration agreements for co-plaintiffs whose claims bear no relation to alleged sexual harassment.
Relevant Background
Multiple sales representatives sued New Start Capital LLC and individual executives, alleging unpaid overtime, unpaid commissions, inaccurate wage statements, race and disability discrimination, retaliation, and breach of contract. Certain plaintiffs alleged that a manager engaged in sexually inappropriate conduct toward one employee and manipulated sales leads to favor her in exchange for acquiescence. Other plaintiffs alleged discriminatory denial of remote work or wage violations unrelated to sexual harassment.
The defendants moved to dismiss and to compel arbitration under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4. The plaintiffs argued that the EFAA rendered the arbitration agreements unenforceable because at least one plaintiff alleged conduct constituting sexual harassment.
Decision
The court began with the text of the EFAA:
“[A]t the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute … no predispute arbitration agreement … shall be valid or enforceable with respect to a case which is filed … and relates to the sexual assault dispute or the sexual harassment dispute.” 9 U.S.C. § 402(a).
The central interpretive question was the meaning of the term “case.” Some district courts have read “case” broadly to mean the entire judicial proceeding once a harassment allegation is plausibly pled. See Johnson v. Everyrealm, Inc., 657 F. Supp. 3d 535 (S.D.N.Y. 2023). Judge Woods confronted a novel question: whether plaintiffs who did not allege harassment could avoid arbitration simply because they joined a complaint with those who did.
The court rejected that expansive reading. It held that the EFAA applies to the “case of the person alleging conduct constituting a sexual harassment dispute,” not to the entire proceeding involving unrelated plaintiffs.
Allowing unrelated plaintiffs to piggyback on a co-plaintiff’s harassment allegations would permit employees “to elude a binding arbitration agreement with respect to wholly unrelated claims.”
The court further noted that the statute expressly authorizes a “named representative of a class or in a collective action alleging such conduct” to void arbitration agreements. 9 U.S.C. § 402(a). Because the harassment allegations were individualized—not asserted on behalf of a certified class—the EFAA did not empower one plaintiff to invalidate arbitration agreements executed by others.
Accordingly, plaintiffs whose claims did not relate to conduct constituting sexual harassment were compelled to arbitrate their wage-and-hour claims.
The court also examined whether certain wage claims “relate[d] to conduct constituting sexual harassment.” 9 U.S.C. § 401(4). For plaintiffs alleging that managers tied lead distribution and commission opportunities to acquiescence in sexual harassment, the court found sufficient nexus:
“[T]heir claims plausibly relate to the alleged sexual harassment endured by [the harassed employee].”
Thus, those plaintiffs’ wage claims fell within the EFAA’s scope and were not subject to arbitration.
The court also dismissed one plaintiff’s state-law discrimination claims for lack of supplemental jurisdiction under 28 U.S.C. § 1367(a), finding no “common nucleus of operative fact” linking her discrimination claims to the federal wage claims.
Turning to individual liability, the court held that the CEO plausibly qualified as an “employer” under the FLSA, 29 U.S.C. § 203(d). Applying the Second Circuit’s operational control framework from Irizarry v. Catsimatidis, 722 F.3d 99 (2d Cir. 2013), the court found allegations that the CEO signed offer letters, participated in termination decisions, and exercised oversight sufficient to survive dismissal.
Finally, relying on Guthrie v. Rainbow Fencing Inc., 113 F.4th 300 (2d Cir. 2024), the court held that employees had Article III standing for NYLL wage-statement claims where inaccurate statements plausibly concealed wage underpayment and interfered with employees’ ability to determine the precise amount owed.
Looking Forward
This opinion carries meaningful implications for franchisors and multi-unit employers that rely on arbitration agreements.
First, the decision narrows the reach of the EFAA. The statute does not automatically invalidate arbitration agreements for all plaintiffs in a multi-plaintiff action merely because one plaintiff alleges sexual harassment. Arbitration agreements remain enforceable for employees whose claims do not relate to harassment conduct.
Second, courts will examine the factual nexus between wage claims and harassment allegations. Where compensation decisions are plausibly tied to alleged harassment, the EFAA may apply to those wage claims as well.
Third, individual executive exposure under the FLSA remains fact-intensive and difficult to resolve at the pleading stage. Allegations of operational control—even without day-to-day supervision—may suffice to withstand dismissal.
Finally, the decision underscores the importance of carefully drafted arbitration agreements and joint-action waivers. Employers should ensure that arbitration clauses clearly define scope and severability, particularly in industries where harassment and wage claims may intersect.
In sum, Lambert provides welcome clarity that the EFAA does not operate as a universal arbitration escape hatch. Courts will enforce arbitration agreements against non-harassment plaintiffs while preserving statutory protections for those alleging conduct constituting sexual harassment.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
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