Trial courts to reassess if female employees’ claims stemming from boss’s sexual assault must be arbitrated
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Friday, July 23, 2021

Trial courts to reassess if female employees’ claims stemming from boss’s sexual assault must be arbitrated

By Marjorie Johnson, J.D.

Neither the trial courts nor the appellate court applied the correct standard in determining whether the female employees’ myriad of claims were subject to a mandatory arbitration agreement they signed when hired.

A law firm and its principal attorney convinced a divided Michigan Supreme Court to vacate an appeals court ruling which would have required them to litigate lawsuits brought by two former female employees who claimed they were sexually harassed and assaulted by the principal. Whether the employees’ allegations of sexual assault and the myriad of claims stemming from those allegations were “relative to” their employment, and thus fell within the scope of the mandatory arbitration agreements they signed upon hire, could only be resolved by asking whether the claims could be maintained without reference to the contract or employment relationship, the state’s high court ruled in a 3-2 decision, remanding the cases back to trial court for reexamination in light of the newly announced standard (Lichon v. Morse, July 20, 2021, Cavanagh, M.).

Allegations against firm owner. The cases underlying this consolidated appeal were brought by the law firm’s former receptionist and paralegal. The receptionist claimed the principal continuously sexually harassed her at work and repeatedly sexually assaulted her by groping her breasts and touching his groin to her rear while making sexual comments. The paralegal claimed that he sexually assaulted her at a Christmas party when he approached her from behind and grabbed her breasts.

Though both employees complained to HR, no action was taken. The receptionist was subsequently fired purportedly due to poor performance while the paralegal chose to resign. They filed separate lawsuits against the firm and the principal asserting claims under the state’s anti-bias law as well as several tort claims, including sexual assault.

Motion to compel arbitration granted. The defendants moved to compel arbitration in each case, arguing that the claims were subject to a Mandatory Dispute Resolution Procedure agreement (MDPRA) that the women signed upon hire and that required arbitration of matters “relative to” employment. The trial courts granted the motions, finding the MDRPA was “a valid and enforceable agreement, supported by consideration and mutuality of obligation,” and that the women’s claims were related to their employment and therefore subject to arbitration.

Appeals court reverses. A divided appeals court consolidated the cases and reversed the trial court’s grant of the motion to compel arbitration. The majority concluded that the employees’ claims of sexual assault were not subject to arbitration because sexual assault was not “related to” their employment. Moreover, the fact that the alleged assaults would not have occurred but for their employment with the firm did not provide a sufficient nexus between the terms of the arbitration agreement and the alleged sexual assaults.

Arbitration of claims “relative to” employment? A divided Michigan Supreme Court found that the lower courts’ analysis was flawed. In particular, the majority explained that arbitration is a matter of contract, and a party cannot be required to arbitrate an issue that she did not agree to submit to arbitration. Here, the MDRPA expressly limited its application to matters “relative to . . . employment.” Therefore, whether the agreement required the employees to arbitrate their claims depended on whether the claims were relative to employment.

“Generally, we think this question can be resolved by asking whether the claim can be maintained without implicating the employment relationship,” explained the majority. The state’s high court also declined to adopt outside of the context of collective bargaining agreements the rule that parties are bound to arbitration if the disputed issue is “arguably” within the arbitration clause.

The defendants pointed to certain facts that supported connections between the employees’ claims and their employment, including that the principal held a position of power over them and that his alleged assaults occurred at work or work-related functions. However, those facts did not necessarily make their claims subject to mandatory arbitration since “we require more than the barest factual connection for a claim to be relative to employment or another pertinent contractual relationship.”

Does claim depend on employment relationship? The majority adopted the approach taken by other jurisdictions that ask whether the claim “could be maintained without reference to the contract or relationship at issue” (here, the employment relationship). The majority borrowed an illustration from an Eleventh Circuit opinion to ponder: if the principal had groped or propositioned opposing counsel or a client in his office, or if he had grabbed the breasts of a server or other patron of the restaurant during the firm’s Christmas party, could those individuals bring the same claims as the two female employees?

This analysis “‘prevents the absurdity of an arbitration clause that bars the parties from litigating any matter, regardless of how unrelated to the substance of the agreement,’ and ensures that the mere “existence of a contract does not mean that every dispute between the parties is arbitrable.” Because the lower courts did not apply this newly adopted standard, the cases were remanded to the trial courts with instructions to reanalyze the motions to compel arbitration.

Dissent. Justice David F. Viviano wrote a lengthy dissent, joined by Justice Brian K. Zahra, asserting that a proper interpretation of the language of the MDRPA showed that the employees’ claims against the firm were arbitrable and that their claims against the principal were also arbitrable if he was able to invoke the arbitration clause, despite not being a signatory to the contract. The Michigan Supreme Court’s newest member, Justice Elizabeth Welch, did not participate in the disposition of this case because it was considered before she assumed office.

The cases are Nos. 159492 and 159493.

Attorneys: Sima G. Patel (Fieger Law) for Samantha Lichon and Jordan Smits. Deborah Gordon (Deborah Gordon Law) for Michael Morse.

Companies: Michael J. Morse, PC

Cases: Arbitration Discrimination SexualHarassment StateLawClaims TortClaims MichiganNews GCNNews

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