Second Circuit Holds EFAA Invalidates Arbitration Agreements for All Claims In Cases Involving Sexual Harassment

Decision Alert: Diaz-Roa v. Hermes Law, P.C., No. 24-3223-CV, 2026 WL 2931801 (2d Cir. Sept. 30, 2026)

Introduction

On September 30, 2026, the U.S. Court of Appeals for the Second Circuit issued its opinion in Diaz-Roa v. Hermes Law, P.C., No. 24-3223-CV, 2026 WL 2931801 (2d Cir. Sept. 30, 2026), addressing for the first time the interpretation of the term “case” under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”). The Second Circuit held that “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.”

Background

The EFAA narrows the Federal Arbitration Act’s reach by allowing employees asserting sexual harassment or sexual assault claims to proceed in court despite a pre-dispute arbitration agreement. Section 402(a) of the EFAA provides that, at the election of the person alleging conduct constituting a sexual harassment or sexual assault dispute, “no predispute arbitration agreement or predispute joint-action waiver 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.”

The Second Circuit’s Decision

In Diaz-Roa, Plaintiff alleged that throughout her seven years working for Defendants, she was subjected to sexual harassment, including being urged to flirt with prospective clients and pursue romantic relationships with industry colleagues, recurring remarks about her physical appearance, and being compared to a piece of steak in front of male business acquaintances. Plaintiff repeatedly expressed her intention to exercise stock options—valued at over $1 million—that had vested in August 2023, but was unable to do so before Defendants terminated her “for cause” on February 9, 2024.

On March 14, 2024, Defendants filed an action for declaratory judgment in the Northern District of Texas, seeking confirmation that they had terminated Plaintiff “for cause,” which would render her stock options void. After moving to dismiss that action, Plaintiff filed suit in the Southern District of New York asserting six causes of action: (1) sexual harassment under the New York City Human Rights Law (“NYCHRL”); (2) sexual harassment under the New York State Human Rights Law (“NYSHRL”); (3) breach of contract; (4) deprivation of earned compensation under New York Labor Law § 193; (5) tortious interference with contract; and (6) conversion. The district court denied Defendants’ motion to compel arbitration in its entirety, reasoning that the EFAA allowed Plaintiff’s entire lawsuit to proceed in court.

On appeal, Defendants argued that the term “case” as used in the EFAA refers not to the lawsuit as a whole, but rather to an individual claim within a lawsuit. Under this reading, only the sexual harassment claims and those related to it would proceed in court, and the remaining claims would proceed in arbitration.

Affirming the district court, the Second Circuit rejected Defendants’ reading of the EFAA and held that Plaintiff could invalidate the arbitration agreement she signed with respect to not only her harassment claims, but to her entire lawsuit. After considering the plain text, common usage, and lower court decisions on this issue, the Second Circuit concluded that “case” as used in the EFAA “is read most naturally to refer to an entire lawsuit,” while “‘claim’. . . denotes something narrower, such as a singular ‘demand for money, property, or a legal remedy to which one asserts a right.’” Accordingly, when a plaintiff properly invokes the EFAA, the pre-dispute arbitration agreement is invalidated as to the entire case—not just the sexual harassment or sexual assault claims.

Alignment With Other Circuits

The Second Circuit’s decision aligns with the other Courts of Appeals that have considered this issue. In Bruce v. Adams & Reese, LLP, 168 F.4th 367, 385-6 (6th Cir. 2026), the Sixth Circuit held that “where a plaintiff brings multiple claims in a single suit against a party with whom she has an otherwise-valid arbitration agreement, and one of those claims alleges a ‘sexual assault dispute’ or a ‘sexual harassment dispute,’ the EFAA renders the arbitration agreement unenforceable with respect to each of the claims that comprise her case.” Similarly, in Ding v. Structure Therapeutics, Inc., No. 25-1532, 2026 WL 2420555 at *7 (9th Cir. Aug. 19, 2026), the Ninth Circuit concluded that “[b]ecause the EFAA invalidates an arbitration agreement ‘with respect to a case’—rather than a claim—that ‘relates to’ a sexual harassment dispute, [the plaintiff] is entitled to bring her entire case in court.”

Conclusion

The Second Circuit’s decision is important for employers because it confirms that, when a plaintiff properly invokes the EFAA by alleging sexual harassment or sexual assault, the employer will be required to litigate the plaintiff’s entire case in court—including claims unrelated to the alleged sexual harassment or sexual assault—despite an otherwise valid pre-dispute arbitration agreement. The Second Circuit is currently considering several other cases raising issues concerning the interpretation of the EFAA, and decisions in those cases are expected in the coming months.

Mayer Brown submitted an amicus brief in this case on behalf of the Chamber of Commerce of the United States of America.