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Are Sexual Assault Claims Subject to Mandatory Arbitration?

The Michigan Court of Appeals recently weighed in on litigation initiated by the Feiger law firm on behalf of two women against the Morse law firm and Michael Morse as an individual. See Lichon v Michael Morse/Michael J. Morse, P.C. and Smits v. Michael Morse/Michael J. Morse, P.C.  Two lower court judges (one from Wayne County and one from Oakland County) had ruled the women were required to arbitrate their sexual assault claims against Michael Morse, the individual. The Michigan Court of Appeals held otherwise in a 2-1 decision

In deciding the women could proceed before a judge instead of an arbitrator, the appellate court looked at the nature of the claims and language in the arbitration agreement.  Both women signed the same arbitration agreement saying the Firm’s arbitration procedure applied 

[t]o all concerns you have over the application or interpretation of the Firm’s Policies and Procedures relative to your employment, including, but not limited to, any disagreements regarding discipline, termination, discrimination or violation of other state or federal employment or labor laws.  This includes any claim over the denial of hire. This Procedure includes any claim against another employee of the Firm for violation of the other state or federal employment or labor laws.   

The Court reviewed the Firm’s policies relating to employment which included a policy prohibiting “any act of harassment, including harassment that is based on an individual’s sex…” The court also looked at the nature of the claims – sexual assault. The court then concluded that claims of sexual assault against an employer or supervisor could not be “related to” employment.  In this vein, the court reasoned that such activity was not related to the employees’ respective positions as a receptionist or paralegal. The court therefore determined that the sexual assault claims did not fall within the arbitration agreement.  Because of that, the arbitration agreement did not apply.  In essence, the court carved out an exception to the arbitration procedure for sexual assault claims filed against Michael Morse, the individual.    

In carving out this exception, the court recognized that strong public policy played a significant role in its decision, stating “We therefore note that central to our conclusion in this matter is the strong public policy that no individual should be forced to arbitrate his or her claims of sexual assault.”  “The [Morse arbitration procedure] under the facts of this case would effectively perpetuate a culture that silences victims of sexual assault and allows abusers to quietly settle these claims behind an arbitrator’s closed door.  Such a result has no place in Michigan law.”    

The dissenting Judge opined that the Michigan legislature was the appropriate branch of government to address any public policy considerations.  She further noted there was a strong public policy under state law favoring arbitration (something the majority referenced in passing). The dissent also disagreed with how the majority framed the question before the court.  She indicated the question to be answered was not whether a sexual assault by a superior was conduct “related to” employment.  The appropriate question before the court was whether the employees’ claims fell within the scope of the arbitration agreement.  The dissenting judge reasoned that the parties agreed to arbitrate “any claim against another employee of the Firm for violation of the Firm’s Policies, discriminatory conduct or violation of other state or federal employment or labor laws.”  She indicated that state law, in particular the Michigan Elliott Larsen Civil Rights Act (“ELCRA”) prohibits sex discrimination.  Sex discrimination includes claims of sexual harassment.  She reasoned that the ELCRA defines sexual harassment as verbal or physical conduct or communication of a sexual nature “which substantially interfere[s] with an individual’s employment”….  Therefore, she concluded, based on ELCRA’s language, sexual assault is sexual harassment which is a form of sex discrimination, which is a claim encompassed under state law and subject to the arbitration procedure.   

It remains to be seen what effect this case will have on the arbitration of sexual assault claims.  Generally, employees argue that the sexual acts of a supervisor are acts the supervisor committed within the scope of employment in order to attach liability to the employer under agency principles.  If sexual assault claims are not “related to” employment as this case determined, then how can an employer be liable for sexual assault claims which could not have been committed within the scope of employment?     

Counsel for the Morse Law Firm/Michael Morse indicated they will appeal the decision to the Michigan Supreme Court.  It is likely the Michigan Supreme Court will address this issue. 

The court itself cautioned that the holding was limited to the very specific facts presented, perhaps in recognition of the impact its decision could have.  

Interestingly, In light of the “me too” movement, many companies have taken action voluntarily to carve out exceptions to mandatory arbitration agreements for sexual harassment claims (Airbnb, EBay, Uber, Microsoft, and Lyft).  The Morse law firm arbitration agreement had no carve out language.  Also in recognition of the “me too” movement, some states have passed legislation limiting the mandatory arbitration of sexual harassment claims (Maryland, New York). California is considering such a law while Vermont attempted to do so but failed.  The Michigan legislature has not passed any law which would restrict the arbitration of sexual harassment claims.

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