Second Circuit Limits Arbitration in Sexual Harassment Lawsuits
The Second Circuit rules EFAA voids arbitration for entire sexual harassment lawsuits.
Why it matters: This decision affects how law firms advise clients on contracts with arbitration clauses in cases alleging sexual harassment or assault. It signals growing judicial scrutiny on these agreements and shapes dispute resolution strategies.
- On September 30, 2026, the Second Circuit ruled in Diaz-Roa v. Hermes Law, P.C. that the EFAA invalidates pre-dispute arbitration agreements for entire lawsuits involving sexual harassment or assault claims.
- The EFAA, enacted in 2022, allows plaintiffs to void arbitration agreements for cases filed under federal, tribal, or state law alleging sexual harassment or assault.
- This ruling aligns the Second Circuit with the Sixth and Ninth Circuits, which have similar interpretations of the EFAA invalidating arbitration for whole lawsuits in this context.
- The plaintiff alleged ongoing harassment during seven years of employment and unlawful termination with $1 million+ in disputed stock options.
On September 30, 2026, the U.S. Court of Appeals for the Second Circuit issued a pivotal ruling in Diaz-Roa v. Hermes Law, P.C., holding that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) invalidates pre-dispute arbitration agreements for the entire lawsuit when sexual harassment or assault claims are alleged.
The EFAA, enacted in 2022, empowers plaintiffs to nullify arbitration agreements not just on the sexual misconduct claims, but on all related claims in the case. This expansive interpretation was affirmed by the Second Circuit, aligning its stance with prior rulings from the Sixth and Ninth Circuits. According to the court, "When it is applicable, the EFAA enables a plaintiff to invalidate a pre-dispute arbitration agreement as to the entire lawsuit, rather than only the sexual harassment or sexual assault claims contained within that lawsuit."
In this case, the plaintiff, who worked at Hermes Law, P.C. for seven years, alleged ongoing sexual harassment by supervisors and claimed unlawful termination and denial of stock options worth over $1 million after expressing intent to exercise them. The district court had denied the defendants' motion to compel arbitration. The Second Circuit's affirmation means the arbitration agreement cannot force this entire dispute out of court into arbitration.
This ruling establishes a broader judicial consensus that the EFAA invalidates arbitration agreements across entire lawsuits that involve sexual harassment or assault claims, including claims unrelated to harassment or assault. Legal practitioners must now consider this when advising clients on contract drafting and dispute resolution, especially in employment contexts involving sensitive misconduct allegations.
By the numbers:
- September 30, 2026 — Date of Second Circuit ruling
- 2022 — Year EFAA was enacted
- 7 years — Length of plaintiff's tenure at Hermes Law
- $1 million+ — Value of stock options in dispute