New Jersey Appellate Division Broadly Applies Ending Forced Arbitration Act
In this consolidated appeal, the New Jersey Appellate Division held in McDermott v. Guaranteed Rate, Inc., No. A-0921-24, 2025 WL 3730563, at *2 (N.J. Super. Ct. App. Div. Dec. 26, 2025), that when a plaintiff asserts at least one viable sexual harassment claim under the New Jersey Law Against Discrimination (“NJLAD”), the entire case must proceed in court and is exempt from arbitration under the federal Ending Forced Arbitration of Sexual Assault and Harassment Act of 2021 (“EFAA”). The decision reversed trial court orders entered by the Superior Court of New Jersey, Law Division, Morris County (Docket No. L-0360-24) and Essex County (Docket No. L-5834-24), which had compelled arbitration of non–sexual harassment claims while permitting only the sexual harassment–related claims to proceed in court.
Trial Court Decisions
In the Morris County matter, the trial court held that the EFAA barred arbitration of Plaintiff’s sexual harassment claims, as well as claims it deemed “inextricably intertwined” with those allegations, but compelled arbitration of Plaintiff’s remaining non-sexual harassment claims. Id. at *4. The court reasoned that although the EFAA precluded arbitration of Plaintiff’s sexual harassment claims, a conflict existed between the EFAA and the Federal Arbitration Act (“FAA”), which favors the enforcement of arbitration agreements. To address this conflict, the court sought to “harmonize” the two statutes by limiting the EFAA’s reach to sexual harassment–related claims. Id. at *3-4. The trial court based its reasoning on the holding in Mera v. SA Hosp. Grp., LLC, 675 F. Supp. 3d 442 (S.D.N.Y. 2023), aff’d in part, rev’d in part, No. 23 CIV. 3492 (PGG) (SDA), 2025 WL 3202080 (S.D.N.Y. Nov. 17, 2025). Id. at *4. (Notably, the holding of Mera was subsequently reversed for substantially the same reasons later adopted by the Appellate Division, as discussed below. See Mera v. SA Hosp. Grp., LLC, No. 23 Civ. 3492 (PGG) (SDA), 2025 WL 3202080, at 1 (S.D.N.Y. Nov. 17, 2025)).
In the Essex County matter, the trial court similarly held that the EFAA precluded arbitration of Plaintiff’s sexual harassment claims, but compelled arbitration of the remaining NJLAD claims, concluding that those claims arose from a different set of operative facts and therefore fell outside the scope of the EFAA. Id. at *1.
Arguments on Appeal
On appeal, both Plaintiffs argued that the trial courts erred by limiting the EFAA’s reach to only sexual harassment claims. Id. at *4-5, 7. They contended that the statute’s plain language bars enforcement of pre-dispute arbitration agreements as to an entire “case” once a viable sexual harassment claim is pled, and that bifurcation of claims was inconsistent with both the statutory text and with the majority of court opinions nationwide.
Appellate Division’s Holding and Reasoning
The Appellate Division agreed with the Plaintiffs and adopted the majority view among federal and (other) state courts interpreting the EFAA. Id. at *11-13. The court held that Section 402(a) of the EFAA renders pre-dispute arbitration agreements unenforceable as to the entire case, not just individual claims, when the case relates to a sexual harassment dispute. The court relied on the statute’s plain language, which provides that:
Notwithstanding any other provision of this title, at 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 under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.
9 U.S.C. § 402(a) (emphasis added).
Emphasizing Congress’s deliberate use of the term “case,” rather than “claim,” the court concluded that the EFAA constitutes a direct congressional override of the FAA’s general policy favoring arbitration. Accordingly, the court rejected bifurcation as unsupported by the statutory text and inconsistent with the EFAA’s purpose.
What This Means for Employers
Based on the Appellate Division’s holding, employers should be aware that pre-dispute arbitration agreements may be entirely unenforceable in employment-based lawsuits that include even a single viable sexual harassment claim, regardless of whether the complaint also asserts wage-and-hour, contract, or other unrelated claims, including discrimination or retaliation based on other protected categories. Accordingly, employers must carefully review their arbitration agreements to ensure its policies align with the Appellate Court’s holding. Further, when a current or former employee brings a sexual harassment claim in court, employers should anticipate that any additional claims raised in the lawsuit will likewise proceed in court.