Labor & Employment Law Daily Wrap Up, ARBITRATION—S.D.N.Y. : Alleged gender-based ‘microaggressions’ insufficient to constitute sexual harassment under the EFAA, (Apr 7, 2026)

By Todd Harrison, J.D.

Although the alleged conduct was unwelcome and may form the basis of a discrimination claim, “the drafters of the EFAA did not extend its protection to all categories of gender-based discrimination.”

Granting Morgan Stanley’s motion to compel arbitration of various federal and state-law discrimination and retaliation claims asserted by a former employee, a federal district court in New York rejected the employee’s contention that the alleged differential treatment and “microaggressions” she experienced because of her gender constituted sexual harassment under the EFAA. Although a previous decision by the court in an unrelated case had declined to adopt a standard that unwelcome verbal or physical behavior be lewd or sexual in nature, it went on to state that differential treatment motivated by a plaintiff’s gender was not by itself “sexual harassment” for purposes of the EFAA (Waiguchu v. Morgan Stanley & Co. LLC, No. 1:25-cv-7443-GHW (S.D.N.Y. Apr. 1, 2026)).

The employee in this case is a Black woman who joined Morgan Stanley in 2022, serving as a Vice President of Securities-Based Lending Solutions in the Pipeline Management Team within the Firm’s U.S Banks division.

Microaggressions. According to the employee, her first supervisor called her “defensive and judgmental” and “berated” her during a meeting. He made jokes about her intelligence and his treatment of the employee and the only other Black female colleague on her team allegedly differed from that of her white, male colleagues.

Other managers also purportedly targeted, micromanaged, and treated the employee in a demeaning manner. She described one as being “less friendly” and “less communicative” with her than he was with her white, male colleagues. Further, when she began reporting to a different supervisor, that supervisor routinely approved remote work and early departures for white and male employees, while denying similar flexibility for the employee.

Arbitration agreement. Before beginning her work at Morgan Stanley, the employee received an offer letter containing an arbitration agreement. According to the terms of the agreement, certain claims would be excluded from mandatory arbitration, including any claim that is expressly precluded from arbitration by a federal statute such as the EFAA.

Lawsuit. On September 8, 2025, the employee commenced this action, asserting claims for discrimination under Title VII, the NYSHRL, and the NYCHRL. She also asserted claims for retaliation under Title VII, Section 1981, the NYSHRL and the NYCHRL. Finally, she also made claims alleging violations of the ADA and the FMLA.

Subsequently, Morgan Stanley filed a motion to dismiss the employee’s claims of sexual harassment and to compel arbitration of her remaining claims. In moving to dismiss these claims, Morgan Stanley did not argue that the employee had inadequately pleaded her claims under any of the applicable statutes. Instead, Morgan Stanley argued that to determine whether the claims should be dismissed, the court should apply the standard for determining whether the alleged misconduct triggered the EFAA.

To support its motion, Morgan Stanley relied on the court’s holding in Owens v. PriceWaterHouseCoopers LLC, 786 F. Supp. 3d 831 (S.D.N.Y. 2025), which determined that not all gender-based discrimination triggered the protection of the EFAA.

Sexual harassment and the NYCHRL. First, the court noted that neither party argued that the complaint alleged conduct constituting “sexual harassment” under applicable federal law. As a result, the court’s focus was directed on whether the complaint alleged conduct constituting a “sexual harassment dispute” under applicable state law. The NYCHRL provides the most lenient applicable liability standard, observed the court.

In Owens, the court was required to define the meaning of conduct constituting sexual harassment for purposes of the EFAA when a plaintiff asserted claims under the NYCHRL. The court defined it as “‘unwelcome verbal or physical behavior based on a person’s gender,’ regardless of whether that behavior is lewd or sexual in nature.” At the same time, the court emphasized that the standard was “a higher bar than simply alleging that a plaintiff was treated less well than other employees because of gender.”

Plausibility standard. Courts in the Southern District of New York almost uniformly apply a “plausibility standard” in determining whether a plaintiff has “alleged” conduct constituting sexual harassment. Because both parties agreed that the plausibility standard applied in this instance, the court proceeded accordingly.

Dismissal inappropriate. Morgan Stanley’s request that the employee’s purported sexual harassment claims be dismissed while sending the remaining aspects of her claims to arbitration was inappropriate, both procedurally and substantively, explained the court, noting that it “should not peel some claims off for dismissal before sending the case to arbitration.”

Such a request runs contrary to Morgan Stanley’s position that the arbitration agreement requires the arbitration of all of the employee’s claims, continued the court. If Morgan Stanley wants the court to resolve the employee’s claims, “it can achieve that goal by not asking the Court to enforce the arbitration agreement—it cannot pick and choose.”

The request was also based on a misapprehension of the substantive legal standard, observed the court. Morgan Stanley conflated the EFAA’s standard for determining whether a complaint alleges conduct constituting “sexual harassment” with the pleading standard for the employee’s underlying causes of action, said the court. All the employee’s claims are to be heard by the arbitrator, and the court’s “decision to compel their arbitration does not limit their scope in any way.”

Not plausibly pled. Turning to the question of whether the employee had plausibly pled conduct constituting sexual harassment under the NYCHRL, the court found that she had not. The allegations did not rise to the level of “unwelcome verbal or physical behavior based on a person’s gender” required for her case to fall within the scope of the EFAA. Owens, 786 F. Supp. 3d at 847. At most, the employee alleged that she was treated less well than other employees because of her gender. As a result, her claims did not fall within the arbitration agreement’s provision excluding claims captured by the EFAA.

Fundamentally, the employee’s arguments were based on an incorrect interpretation of the standard articulated in Owens, explained the court. The employee believed that Owens endorsed a view of the type of conduct that constitutes sexual harassment for purposes of the EFAA that is substantively equivalent to the NYCHRL’s pleading standard, which requires merely that a plaintiff be treated “less well” on the basis of her gender.

Although Owens “decline[d] to adopt a requirement that the unwelcome verbal or physical behavior be lewd or sexual in nature,” it held that differential treatment motivated by a plaintiff’s gender was not by itself “sexual harassment” for purposes of the EFAA. Thus, it was the court’s responsibility to examine the nature of the alleged conduct to determine whether it meets this test. In this instance, it did not.

Microaggressions not sexual harassment. The employee’s allegations that she was subject to differential treatment and microaggressions based on her gender did not constitute sexual harassment under the EFAA, said the court, going on to note that alleged differential treatment on the basis of her gender and race was the consistent theme of her complaint.

For example, she alleged that the treatment she received from her managers was “belittling and condescending.” Although such conduct was unwelcome and may form the basis for a claim of discrimination as differential treatment based on gender, “the drafters of the EFAA did not extend its protection to all categories of gender-based discrimination,” said the court.

As to the employee’s allegations that her first supervisor shouted at her on two occasions, the court found that this too failed to constitute sexual harassment for purposes of the EFAA. The supervisor did not resort to gendered terms, and thus the employee did not plausibly plead conduct constituting sexual harassment for purposes of the EFAA, concluded the court.

Because the employee did not challenge the validity or enforceability of the arbitration agreement and because none of her claims fell under the EFAA’s protections, the court found her claims were subject to mandatory arbitration pursuant to the terms of the agreement.

The case is No. 1:25-cv-7443-GHW.

Judge: Woods, G.

Attorneys: Alexandria Jean-Pierre (Mesidor) for Theresa Waiguchu. Melissa D. Hill (Morgan, Lewis & Bockius) for Morgan Stanley & Co. LLC.

Companies: Morgan Stanley & Co. LLC

Cases: Arbitration CoverageLiability Discrimination RaceDiscrimination SexDiscrimination SexualHarassment Procedure StateLawClaims NewYorkNews