The U.S. Court of Appeals for the Second Circuit has held that when an employee brings a viable sexual harassment claim, the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) lets the employee keep the entire lawsuit in court, including unrelated claims that would otherwise be arbitrable. The decision, Diaz-Roa v. Hermes Law, P.C., involved a Dallas-based law firm and joins the Sixth and Ninth Circuits in reading the statute this way.[1] For employers, the practical effect is significant: a well-drafted arbitration agreement may not keep contract, compensation, wage-and-hour, or other employment claims out of court if a plausible harassment claim is pleaded alongside them.
The EFAA in Brief
Congress enacted the EFAA in March 2022 as an amendment to the Federal Arbitration Act. It gives a person alleging sexual harassment or sexual assault the option to litigate in court rather than arbitrate, even if they signed a pre-dispute arbitration agreement or class-action waiver. The choice belongs to the employee, not the employer.
The statute defines a covered “sexual harassment dispute” broadly, reaching any dispute relating to conduct alleged to be sexual harassment under federal, tribal, or state law. What the EFAA did not expressly answer is how far that protection extends when harassment claims are bundled with other claims in the same lawsuit.
The Diaz-Roa Decision
The plaintiff held senior roles for a Dallas law firm and at an affiliated litigation-management company, ultimately serving as that company’s Chief Operating Officer. She received stock options that she alleges were worth approximately $1 million upon vesting. She alleges that, shortly after she attempted to exercise those options, she was terminated for cause despite a record of positive performance reviews. She further alleges that the firm’s owner sexually harassed her by commenting on her appearance and encouraging her to flirt with clients.
She sued in federal court in New York, where she had worked remotely, asserting state-law harassment claims alongside breach of contract and other claims tied to the stock options. The defendants moved to compel arbitration or transfer the case to the Northern District of Texas. The district court denied both requests and, after dismissing some claims, held that the EFAA barred arbitration of everything that remained, including a surviving non-harassment claim.
On appeal, the defendants argued that the EFAA’s reference to a “case” means an individual claim, so the non-harassment claim should be severed and sent to arbitration. The Second Circuit disagreed. It reasoned that courts routinely use “case” to mean an entire lawsuit and “claim” to mean a single cause of action, and that Congress used “claim” elsewhere in the EFAA when it meant claim. The court affirmed the denial of arbitration as to all remaining claims.
Recommended Next Steps for Texas Employers
With three federal circuits and a California appellate court now aligned, employers should expect most courts to treat a viable harassment claim as opening the courthouse door to the whole lawsuit. That shifts leverage to plaintiffs, who can pair a harassment allegation with wage-and-hour, compensation, or contract claims that the employer expected to resolve privately and more efficiently in arbitration.
The Fifth Circuit has not yet issued a published decision squarely resolving this question. Texas employers should not assume a different result here. Diaz-Roa itself shows how a dispute with a Dallas employer can end up litigated in another circuit when the employee lives or works remotely elsewhere.
Practical Takeaways
- Revisit your arbitration agreements. Agreements that carve out only harassment and assault claims may not reflect how courts now apply the EFAA. Consider severability, delegation, venue, and choice-of-law provisions with these decisions in mind, particularly for remote employees in other states.
- Strengthen prevention. Confirm that harassment, assault, and reporting policies are current, and that managers and employees receive regular training. Prompt, well-documented investigations remain the best defense.
- Plan an early litigation strategy. When a harassment claim is pleaded with other claims, evaluate promptly whether it is plausibly alleged, since its dismissal may restore your right to arbitrate the rest.
The EFAA’s reach is still being litigated nationwide, and we will continue to monitor developments, including in the Fifth Circuit. If you have questions about this decision or would like us to review your arbitration program, please contact Stacey Cho Hernandez or any member of the Carter Arnett Stahl + Cho Hernandez labor and employment team.
This is provided for general informational purposes and is not legal advice.
[1] Diaz-Roa v. Hermes Law, P.C., et al., No. 24-3223-cv, 2026 WL 2931801 (2d Cir. Sept. 30 2026).