Mandatory arbitration agreements for employment claims have been increasingly criticized, but that criticism has increased dramatically for sexual harassment cases. The #MeToo movement has generated significant pressure to exclude sexual harassment claims from mandatory employment arbitration agreements, and proposed legislation federally and in various states seeks to bar mandatory arbitration agreements or at least to exclude sexual harassment claims from mandatory employment arbitration agreements.

In a recent consolidated State of Michigan Court of Appeals case, Lichon v. Michael Morse and Michael J. Morse P.C. Case No. 170158919-CS, and Smits v. Michael Morse, Case Nos. 17-01128-CZ and 17-008068-CZ (Mich. Ct. App. March 14, 2019), the Michigan Court of Appeals addressed the scope of mandatory arbitration agreements. The 2-1 opinion is marked “FOR PUBLICATION”, which means it is binding on the trial courts in Michigan.

In that case, both plaintiff-employees alleged that they were sexually harassed and were sexually assaulted by Michael Morse, an owner at The Morse law firm where they worked, with unwanted touching. The Morse law firm had a Mandatory Dispute Resolution Procedure Agreement (“MDRPA”) for “any disagreements regarding … discriminatory conduct or violation of other state or federal employment or labor laws. … This Procedure includes any claim against another employee of the Firm for … discriminatory conduct or violation of other state or federal employment or labor laws.”

The plaintiff-employees sued the Morse law firm under Michigan’s Elliot-Larsen Civil Rights Act (“ELCRA”), which prohibits sexual discrimination and harassment in the workplace; Mr. Morse individually for sexual assault and battery; and the Morse law firm and Mr. Morse jointly and severally for negligent and intentional infliction of emotional distress, negligence, gross negligence, and wanton and willful misconduct.

The defendants (the Morse law firm and Mr. Morse) argued that the MDRPA required plaintiffs to arbitrate their claims. Plaintiffs argued that claims of sexual assault do not arise out of employment.

At the initial trial court stage, the trial judges in both cases found that the MDRPA was valid and enforceable and that it included the claims of unwanted touching.

The Court of Appeals majority defined the issue as whether the sexual assault and battery of an employee at the hands of an employer or supervisor is conduct related to employment. The majority noted that the issue, whether the sexual assault and battery of an employee at the hands of a superior is conduct related to employment, is an issue of first impression in Michigan. The majority concluded that it is not conduct related to employment. The majority stated that despite the fact that the sexual assaults may not have happened but for plaintiffs’ employment with the Morse firm, claims of sexual assault cannot be related to employment.

The Court noted that “the effect of allowing defendants to enforce the MDRPA 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.” This is a primary argument made by the #MeToo movement to exclude sexual harassment claims from mandatory arbitration.

The majority did “caution future litigants that our conclusion is due to a very specific set of facts. Under different circumstances, we may conclude that the gravamen of plaintiffs’ claims against the Morse firm are a failure to discipline, or adequately discipline, a fellow employee of the firm for offensive and egregious sexual misconduct and/or sexual harassment”, which could lead to a decision compelling arbitration. In other words, a critical fact in this case was that the allegations were against the owner.

The dissent (see Lichon v. Michael Morse and Michael J. Morse P.C. Case No. 170158919-CS, and Smits v. Michael Morse, Case Nos. 17-01128-CZ and 17-008068-CZ (Mich. Ct. App. March 14, 2019 – Dissenting Opinion)) stated “the only issue is whether the claims to be arbitrated – which include claims that plaintiffs were sexually assaulted at the hands of their superior – are arguably within the scope of the parties’ arbitration agreement.” The dissent agreed that sexual assault is not conduct related to employment but stated “I would more broadly frame the question before us as to whether plaintiffs’ claims arguably fall within the scope of the arbitration agreement.” The dissent reasoned that under the ELCRA, sexual assault is sexual harassment, and sexual harassment is, under the ELCRA, discrimination because of sex. Thus, based on the unambiguous language in the parties’ arbitration agreement, the dissent believed that plaintiffs’ claims arguably fall within the scope of the MDRPA.

The dissent went on to say that “although I do not believe that an employee should be required to arbitrate allegations of sexual assault, I am constrained by the law and the terms of the employment contract to dissent in this case. I believe that our Legislature is the appropriate forum for addressing this policy matter.”

Takeaways

As a result of this opinion, employers should anticipate that anytime an employee claims unwanted touching, the employee will argue that a mandatory employment arbitration agreement does not apply.

The issue may be further addressed by the Michigan Supreme Court in this case, the Legislature, or both. Because there are advantages and disadvantages with mandatory employment arbitration agreements, we encourage employers to contact us to evaluate whether a mandatory employment arbitration agreement makes sense for them.