For years, employers have relied on arbitration agreements to keep employment disputes out of court. In 2022, Congress carved out an exception for sexual harassment and sexual assault claims, but the law didn’t clearly say what happens to the other claims in the same lawsuit.
The Second Circuit has now sided with employees on that question. In Diaz‑Roa v. Hermes Law, P.C., No. 24‑3223‑cv (2d Cir. Sept. 30, 2026), the court held that when an employee properly invokes the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“EFAA”), the arbitration agreement can’t be enforced as to the entire case, including claims that have nothing to do with harassment.
What Happened
Silvia Diaz‑Roa signed an arbitration agreement when she joined a law firm. Years later, she was fired shortly after announcing that she planned to exercise valuable stock options she had earned at an affiliated company. She sued, alleging both sexual harassment and claims tied to the stock options. Her employers asked the court to send the non‑harassment claims to arbitration.
The Court Keeps the Whole Case
The Second Circuit refused to split the case. The EFAA blocks arbitration “with respect to a case” involving sexual harassment or assault, and the court read “case” to mean the whole lawsuit rather than any one claim within it. Congress used the word “claim” elsewhere in the same law, which the court took as a sign that the choice of “case” was deliberate.
The employers argued that each non‑harassment claim had to be tied to the harassment before it could stay in court. The court disagreed, holding that only the case as a whole needs that connection. It also gave little weight to the general federal policy favoring arbitration, noting that Congress wrote the EFAA specifically to create an exception to it.
So Diaz‑Roa’s claim over the stock options will be decided in court alongside her harassment claims.
A Growing Consensus
The Second Circuit is the third federal appeals court to reach this conclusion this year, following the Sixth and Ninth Circuits. For Connecticut employers, the decision is now binding precedent in federal court.
Two questions remain open:
- How much an employee must allege. The court didn’t decide how strong a harassment claim must be to trigger the EFAA, an issue on which lower courts, including in Connecticut, disagree.
- Class actions and multiple plaintiffs. The court didn’t address how the rule applies in class or collective actions, or when only one of several plaintiffs alleges harassment.
What Employers Should Do Now
If an employee includes a harassment claim in a lawsuit, an arbitration agreement may do little to keep any part of that lawsuit out of court. A dispute mostly about commissions, equity, or a termination can now end up before a judge and jury because of one harassment allegation.
Employers that use arbitration agreements should consider the following:
- Revisit the business case. If your main goal is to avoid jury trials on high‑exposure claims, ask how often your disputes are likely to include allegations that would trigger the EFAA.
- Review your agreements’ structure. Look at how your agreements handle claims covered by the EFAA, as well as their choice‑of‑law and forum provisions, in case an employee elects to bring the whole case in court.
- Keep investing in prevention. Harassment training and prompt, documented investigations remain the best way to limit both the claims themselves and the leverage they give a plaintiff.
- Watch the open questions. Future rulings on these issues may change how much protection your agreement still offers.
Arbitration agreements still have value, but they offer less protection than many employers assumed. If you have questions about how this decision affects your arbitration agreements, please don’t hesitate to contact Shipman’s Employment Team.