Employment Litigation Roundup: October 2024

October 31, 2024

October 2024

California appellate court holds Ending Forced Arbitration Act prevents arbitration of claims “relating to” sexual harassment

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”) amended the Federal Arbitration Act to prohibit mandatory arbitration of sexual harassment and sexual assault claims. In Doe v. Second Street Corp., a California appellate court held that all of a former employee’s causes of action, which included both claims of sexual harassment and wage and hour law violations, could proceed to trial because they were part of and “related to” the same “case.”

Relying on language from the EFAA that it applies to “a case which… relates to the sexual assault dispute or the sexual harassment dispute, the court found the EFAA barred arbitration of the employee’s entire case, not merely claims alleging sexual assault or sexual harassment—even if those claims do not “arise out of” a sexual assault or sexual harassment dispute:

Here, although not all of plaintiff’s causes of action arise out of her sexual harassment allegations, the “case” unquestionably “relates to” the sexual harassment dispute because all of the causes of action are asserted by the same plaintiff, against the same defendants, and arise out of plaintiff’s employment by the hotel.

S&K Take: We’ve covered several cases—here, here and here—showing how courts have defined the scope and reach of the EFAA following its enactment. Case law is still developing, but decisions like Doe may encourage employees to assert sexual harassment claims in lawsuits to avoid mandatory arbitration provisions in employment agreements or other employment documents. Notably, the plaintiff in Doe asserted wage and hour claims, which employers often to seek to resolve through individual arbitration due to the potential for significant liability if such claims are litigated on a collective or class basis. The court left unanswered whether, or how, the EFAA would apply to a case alleging both individual claims (including sexual harassment) and collective or class claims (including wage claims).

US Supreme Court to decide whether straight worker must show additional “background circumstances” to establish sexual orientation discrimination under Title VII 

The US Supreme Court has agreed to review the Sixth Circuit Court of Appeals’ decision in Ames v. Ohio Department of Youth Services, which granted an employer’s motion for summary judgment defeating a straight worker’s sexual orientation discrimination claim under Title VII. The plaintiff, a straight woman, alleged that her supervisor, a gay woman, acted unlawfully by rejecting her for a promotion in favor of a less-qualified gay woman, and then demoting her and selecting a gay man as her replacement.

The Sixth Circuit had dismissed the plaintiff’s claim, in part, because as a member of a majority group (straight people), she also needed to show “background circumstances to support the suspicion that the defendant is that unusual employer who discriminates against the majority.” The court explained, “[p]laintiffs typically make that showing with evidence that a member of the relevant minority group (here, gay people) made the employment decision at issue, or with statistical evidence showing a pattern of discrimination by the employer against members of the majority group.” The court held the plaintiff failed to make this showing. The Sixth Circuit joins four other appellate courts in requiring a majority-group plaintiff to make this additional showing.

The Supreme Court granted the plaintiff’s petition for certiorari to determine whether, in addition to pleading the traditional elements of a Title VII claim, a majority-group plaintiff must show such “background circumstances” to establish discrimination. Citing a divide in the federal courts, the Supreme Court pointed to the plain language of Title VII, which prohibits employers from discriminating against “any individual” with respect to the terms and conditions of their employment “because of such individual’s race, color, religion, sex, or national origin,” and indicated that a “background circumstances” requirement imposed only upon majority-group plaintiffs “defies” the fundamental principles of the anti-discrimination law.

S&K Take: The Supreme Court’s decision in this case could have broad implications on the scope of Title VII as it pertains to “reverse discrimination” claims, which have seen an uptick in recent years, and the increasing scrutiny applied to Diversity, Equity and Inclusion efforts. The Supreme Court has not yet set a date for oral argument, but we will continue to monitor.

Consumer Financial Protection Bureau cautions that the Fair Credit Reporting Act applies broadly to compilations of worker data used for background checks, performance monitoring, and other employment purposes 

The Consumer Financial Protection Bureau (“CFPB”) enforces the 1970 Fair Credit Reporting Act (“FCRA”), an act which regulates information collected by consumer reporting agencies (“consumer reports”) and how employers can utilize such consumer reports in employment, including to perform background checks. For example, the FCRA requires consumer reporting agencies follow certain procedures (including conducting investigations) to ensure consumer reports are accurate and requires employers to disclose if they rely on a consumer report to make adverse employment decisions.

With technological advancements expanding the scope of worker data collected and how it is used, the CFPB issued guidance emphasizing that the FCRA’s protections should be interpreted broadly “to protect workers from unchecked digital tracking and opaque decision-making systems.” Notably, the CFPB cautioned that the FCRA may apply to third-party compilations of employee data, which are not traditionally thought of as “consumer reports” and which extend beyond traditional background checks, such as information from electronic monitoring and productivity tracking software. The CFPB reasoned that the FCRA’s consent and disclosure rights are especially important because it is not always clear what information is being collected by such new tools or how it is being used against workers.

S&K Take: Employers may already be familiar with the FCRA as it applies to background check and hiring processes, but the CFPB’s guidance goes further. With the increasing prevalence of artificial intelligence and algorithmic tools in the workplace, employers should proceed carefully before relying on such tools to compile data about current or prospective employees or to make employment decisions.

FTC appeals federal court rulings blocking its non-compete rule 

On September 24, 2024, the Federal Trade Commission (“FTC”) appealed to the Eleventh Circuit Court of Appeals to review the Middle District of Florida’s ruling which granted a preliminary injunction prohibiting the FTC from enforcing its non-compete ban (the “Rule”) against Properties of the Villages, Inc., the plaintiffs in that case.

On October 18, 2024, FTC appealed to the Fifth Circuit Court of Appeals to review the Northern District of Texas court’s ruling, which set aside the Rule and prohibited the FTC from enforcing the Rule nationwide. Until and unless the Fifth Circuit orders otherwise, the Rule remains blocked nationwide.

We will continue to monitor. If the circuit courts issue conflicting opinions in these cases, it could increase the chance of review by the U.S. Supreme Court.