Labor & Employment Law Daily Wrap Up, ARBITRATION—S.D.N.Y.: Only employees who alleged claims related to sexual assault or sexual harassment may pursue claims under EFAA, (Aug 11, 2025)

By Ronald Miller, J.D.

Employees alleged that a manager abused his discretion in distributing sales leads by tying leads and compensation to acquiescing to his sexually harassing conduct.

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) only applies to the plaintiffs alleging a dispute related to conduct constituting sexual assault or sexual harassment, ruled a federal district court in New York. A sales manager provided the most “profitable leads to employees he favored,” including acquiescence in his harassing conduct by a female sales rep. Further, an Arab sales rep was terminated for reporting the manager’s alleged harassment of the female sales rep. The court held that the employees’ wage and overtime claims that overlapped with claims related to conduct constituting sexual harassment could be pursued in court under the EFAA. However, those plaintiffs in the action whose allegations did not relate to any alleged sexual assault or sexual harassment were bound by otherwise valid arbitration agreements (Lambert v. New Start Capital LLC, No. 1:24-cv-8055-GHW (S.D.N.Y. Aug. 7, 2025)).

Sales representatives. The plaintiffs in this action are former sales representatives for the employer, New Start Capital. The offer letters for each of the sales reps stated that their hourly rate would be $15 and that their overtime rate would be $22.50 per hour for all hours worked over 40 hours in a workweek. Each of the sales reps worked between 50 to 70 hours per week. The employer also entered commission agreements with the sales reps.

Despite working in excess of 40 hours per week at the demand of their manager, the sales reps were paid only for 40 hours per week of work. The wage statements provided by the employer did not include the actual hours worked, including the number of overtime hours worked. The employer did not record the employees’ overtime hours.

The employer engaged in a pattern and practice not to pay overtime wages to all their employees. It also failed to provide the employees with their commission payments in the month after the commission was earned.

Arbitration agreements. The sales reps also entered into agreements with the employer to use binding arbitration as the sole and exclusive means to resolve all disputes that may arise between the employee and the company.

Sexual harassment. The sales reps’ manager was alleged to have engaged in sexually inappropriate conduct directed at a female sales representative. The employer did not distribute its leads blindly; rather, leads were distributed by managers. This method of distributing leads allowed the manager to provide the most “profitable leads to employees he favored.” In return for her acquiescence, the manager offered the female sales rep profitable leads, which could result in larger commissions. The manager gave her those leads at the expense of other employees.

Derogatory remarks. The manager was also alleged to have made racially derogatory remarks about the sales rep of Arab Egyptian national origin. The Arab sales rep was later terminated for reporting the manager’s alleged harassment of the female sales rep. After the Arab employee’s termination, the employer purportedly conducted a “sham investigation” into the conduct of the manager, and no corrective action was taken.

After the alleged target of the manager’s inappropriate conduct complained, she began receiving leads that had little value, lowering her commissions significantly. In addition, after she filed this action on October 25, 2024, the quality of her leads “plummeted” further.

Remote work. A third sales rep separately alleged that she faced racial and disability discrimination from the company’s CEO when he refused to let her work remotely because she was a Black woman. The employee “suffers from post-surgical scoliosis with chronic pain and spinal degenerative issues.” Initially, the employer had promised the employee that she would be able to work remotely after three months. Many of the employer’s sales reps worked remotely.

On or about November 27, 2023, the employee asked for “permission to work remotely before the completion of three months’ work due to her disability.” Thereafter, she was informed that she would not be allowed to work remotely at that time or after three months of work. The employee was told that the employer “had problems with people like [her] in the past,” referring to another Black female employee who had “abused the privilege” of remote work.

The employer moved to dismiss and to compel arbitration of most of the employees’ claims.

State law claims. Turning to the claim of the employee who alleged denial of remote work, the court observed that her claims arose under state law and shared no facts with any other plaintiffs’ claims. Her race-based discrimination claims centered around the denial of remote work. The court determined that it lacked subject matter jurisdiction over her claims, asserted exclusively under New York state and city law. Accordingly, the court declined to exercise supplemental jurisdiction over her claims.

Human rights law claims. Because the claims of the employee who was sexually harassed, and the claims of the Arab employee, stated discrimination and hostile work environment claims derived from operative facts that overlapped substantially with each other and with the federal wage claims, the court had supplemental jurisdiction over those claims.

The employees alleged that their sales leads, and by extension their compensation on commission, were dependent on the discretion of their managers. Further, they alleged that their manager abused that discretion by tying leads and compensation to acquiescing to his sexually harassing conduct. Therefore, the facts underlying the hostile work environment claims also speak to the alleged failure to pay proper wages. Thus, there was a common nucleus of operative facts sufficient for the court to exercise supplemental jurisdiction at this stage.

Motion to compel arbitration. The EFAA amended the FAA by carving out an exception to section 4. It provides that at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, no pre-dispute arbitration agreement or pre-dispute joint-action waiver shall be valid or enforceable with respect to a case.

Because the court found that the alleged harassment victim and the Arab employee plausibly pleaded sexual harassment disputes under the NYCHRL, it concluded that their arbitration agreements were unenforceable, such that their claims were not arbitrable. Moreover, the EFAA applied to their wage-and-hour claims as well.

Wage claims. Separately, the sales reps alleged that the employer failed to pay them proper overtime wages or proper commissions, in breach of their employment agreements and in violation of federal and state labor laws. Here, the court concluded that because the wage and overtime claims of the sales rep did not allege conduct constituting a sexual harassment or sexual assault dispute, they must be arbitrated pursuant to the arbitration agreement.

Accordingly, the employer’s motion to compel arbitration of the employees’ claims was granted in part and denied in part.

The case is No. 1:24-cv-8055-GHW.

Judge: Woods, G.

Attorneys: Chaya Mushke Gourarie (Bell Law Group) for Alana Lambert, Erica Wiltz, and Kimarah LeRouge. Annabel Rae Stanley (Jackson Lewis) for New Start Capital LLC fka Titan Consulting Group LLC.

Companies: New Start Capital LLC; Titan Consulting Group LLC

Cases: Arbitration Discrimination SexDiscrimination SexualHarassment Retaliation WageHour Overtime StateLawClaims Procedure NewYorkNews