Can Your Employer Force a Sexual Harassment Claim Into Arbitration? What New York Financial Industry Employees Should Know

Employees in banking, brokerage, investment management, and other parts of the financial industry may sign an enormous stack of documents before their first day.

Buried among compensation agreements, compliance forms, electronic onboarding screens, handbook acknowledgments, and regulatory paperwork may be an arbitration clause.

Years later, an employee reports sexual harassment and discovers that the employer says any legal dispute must be handled privately in arbitration instead of court.

The situation can become even more complicated for securities professionals subject to FINRA rules.

Federal law has substantially changed the treatment of sexual harassment arbitration agreements, however, and recent decisions from the Second Circuit provide important guidance for New York workers.

An arbitration clause should be reviewed carefully. Employees should not assume that seeing one means they have lost their ability to bring a qualifying sexual harassment case in court.

What Is an Arbitration Agreement?

Arbitration is a private method for resolving legal disputes. Instead of presenting a case in court before a judge or jury, the parties generally present evidence and arguments to an arbitrator or arbitration panel.

Many employers ask workers to agree to arbitration before any dispute exists. These are known as predispute arbitration agreements. The clause might appear in a stand-alone agreement, employment contract, offer letter, handbook acknowledgment, or electronic onboarding form.

Financial industry employees may encounter arbitration provisions in additional places, including securities-registration materials.

The Federal Law That Changed Sexual Harassment Arbitration

Congress enacted the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, commonly called the EFAA, in 2022.

The law allows a person alleging conduct constituting a sexual harassment or sexual assault dispute to elect not to enforce a qualifying predispute arbitration agreement for a case relating to that dispute.

In other words, an employee who signed an arbitration agreement before sexual harassment occurred may still have the ability to choose court.

The statute also says that questions about whether the EFAA applies are decided by a court, not an arbitrator.

That provision can become extremely important when the employer and employee disagree about whether a particular case qualifies for the exemption.

Timing Matters

The EFAA became law on March 3, 2022. Congress specified that it applies to disputes or claims that arise or accrue on or after that date. 

Older disputes can therefore present different issues. An employee who experienced harassment before March 2022 should not automatically assume the EFAA invalidates an arbitration clause simply because the lawsuit was filed later.

At the same time, cases involving continuing harassment, later retaliation, or other post-2022 conduct can require a more detailed analysis.

New York employees are governed by decisions from the U.S. Court of Appeals for the Second Circuit, which has already addressed several important EFAA questions.

The Second Circuit Has Given New York Employees Important Guidance

In Olivieri v. Stifel, Nicolaus & Company, the Second Circuit considered allegations from a financial-industry employee who claimed that she had been sexually assaulted and harassed and later subjected to an ongoing hostile work environment and retaliation.

The court concluded that the EFAA could apply based on the continuing nature of the alleged hostile work environment after the law took effect.

More recently, the Second Circuit issued another significant decision in Diaz-Roa v. Hermes Law in September 2026.

The court held that when the EFAA applies, the employee may invalidate the predispute arbitration agreement with respect to the entire lawsuit, rather than only the individual sexual harassment or sexual assault claims within it.

That can be particularly important in employment cases where sexual harassment allegations appear alongside retaliation, wrongful termination, compensation, or other claims.

The details still matter. Another recent Second Circuit decision involving LVMH illustrates that claims accruing before the EFAA’s effective date can remain subject to arbitration.

Why Financial Industry Employees Face Additional Questions

Financial-industry workers may have agreements governed not only by ordinary employment documents but also by FINRA requirements.

Registered securities professionals commonly complete Form U4. The Form U4 contains an agreement to arbitrate disputes that are required to be arbitrated under applicable self-regulatory organization rules. FINRA itself noted this language in a 2026 regulatory notice.

But that does not mean every employment dispute involving a registered financial professional must go through FINRA arbitration.

FINRA Rule 13201 provides exceptions for employment discrimination and sexual harassment matters.

FINRA stated in its 2026 guidance that statutory employment discrimination claims, sexual assault claims, and sexual harassment claims are not required to be arbitrated under its Industry Code.

That makes it especially important to identify what agreement the employer is actually relying on.

Form U4 May Not Be the Only Arbitration Agreement You Signed

An employee may focus on FINRA because they remember signing Form U4. The employer may point to something else entirely.

A brokerage firm might have a separate employment arbitration agreement. An offer letter may incorporate a dispute-resolution program. An employee may have electronically acknowledged an arbitration policy during onboarding.

Those documents may contain terms that go beyond whatever arbitration obligations arise under FINRA rules.

That is why employees should review the full onboarding package rather than asking only whether they “signed a FINRA agreement.”

The existence of a separate arbitration agreement does not necessarily mean the sexual harassment claim must be arbitrated. The EFAA may independently affect enforceability.

Check Your Onboarding Material

Workers considering a sexual harassment claim should look for documents using terms such as:

• Arbitration
• Binding arbitration
• Dispute resolution
• Waiver of jury trial
• Employment disputes
• Form U4
• FINRA arbitration
• Alternative dispute resolution

Try to locate the version you actually signed. A company’s current handbook may be different from the policy that applied when you started. Electronic acknowledgments, amendments, and later agreements can also matter.

Do not alter the documents. Preserve them and their signature or acknowledgment dates.

Why Employers May Still Fight About Arbitration

The EFAA created powerful protections, but disputes over its application have not disappeared.

An employer may argue that the alleged conduct does not qualify as a sexual harassment dispute.

It may argue that the dispute arose before March 3, 2022. It may contend that particular claims fall outside the case protected by the statute. Recent appellate decisions have answered some of these questions, but the factual history of each employment dispute remains important.

This is why the arbitration issue may itself become an early legal battle.

The statute expressly places the question of EFAA applicability with the court rather than the arbitrator.

The Entire Case May Be Able to Stay in Court

One of the most important recent developments for New York employees came from the Second Circuit’s September 2026 Diaz-Roa decision.

The employer argued that even if the EFAA prevented arbitration of the sexual harassment allegations, other claims in the lawsuit should still be arbitrated.

The Second Circuit rejected that narrower approach. When the EFAA properly applies, the court held, the predispute arbitration agreement is unenforceable with respect to the entire “case,” including non-harassment claims contained in the same lawsuit.

That does not mean an employee can automatically avoid arbitration merely by adding the words “sexual harassment” to a complaint.

There must be a qualifying sexual harassment or sexual assault dispute. But where the statute legitimately applies, the consequences can extend beyond a single count in the lawsuit.

Do Not Assume FINRA Means You Have to Arbitrate

Employees in finance sometimes hear “FINRA” and assume court is no longer an option. FINRA’s current rules are more nuanced.

FINRA Rule 13201 states that statutory employment discrimination claims are not automatically required to be arbitrated under the Industry Code, and FINRA has expressly stated that sexual assault and sexual harassment claims are not required to be arbitrated under the Code.

Separate employment agreements can complicate the analysis. Federal law can complicate it again. The answer depends on the actual documents, the type of claims involved, and when the dispute arose.

What if I Already Started Arbitration?

Do not assume that beginning arbitration automatically resolves every EFAA issue. The procedural history of a case can matter, particularly if sexual harassment allegations or evidence emerge after arbitration begins.

Likewise, employees should not simply withdraw or change course without legal advice.

An attorney at Morgan & Morgan can evaluate what has already happened, which agreements apply, and whether recent federal law creates an alternative path.

Preserve the Harassment Timeline Along With the Arbitration Documents

Dates matter under the EFAA. Preserve evidence showing when the harassment occurred, when you reported it, when the employer responded, and whether harassment or retaliation continued afterward.

This might include HR complaints, emails, texts, performance reviews, termination notices, arbitration demands, or correspondence from the employer’s attorneys.

A detailed chronology can help determine when the dispute or particular claims arose for purposes of the federal law.

Morgan & Morgan May Be Able to Help

An arbitration clause can look definitive when it appears in a signed employment agreement.

Sexual harassment law has changed significantly since many employees signed those documents.

If you work in New York’s financial industry and your employer claims that sexual harassment allegations must be handled through FINRA or another arbitration forum, Morgan & Morgan can review the circumstances and help determine what options may be available.

To learn more, contact Morgan & Morgan for a free case evaluation.

Frequently Asked Questions

Can my employer force a sexual harassment case into arbitration?

Under the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, a person alleging a qualifying sexual harassment or sexual assault dispute may elect not to enforce a predispute arbitration agreement with respect to a case relating to that dispute.

The law applies to disputes or claims that arise or accrue on or after March 3, 2022. Whether a particular case qualifies can depend on the allegations and timing. The law also specifically requires a court, rather than the arbitrator, to decide whether the federal protection applies.

An employee should then avoid assuming that an employer’s arbitration demand settles the question.

Does signing Form U4 mean I have to arbitrate sexual harassment?

Form U4 contains an agreement concerning arbitration of disputes required to be arbitrated under applicable self-regulatory organization rules.

FINRA Rule 13201 creates important exceptions in employment cases, and FINRA has stated that sexual harassment and sexual assault claims are not required to be arbitrated under its Industry Code.

However, your employer may have required you to sign a separate arbitration agreement outside Form U4.

That agreement also needs to be reviewed. The federal EFAA may affect whether a predispute agreement can be enforced against a qualifying sexual harassment case.

Does the Ending Forced Arbitration Act apply to harassment that happened before March 3, 2022?

Congress made the EFAA applicable to disputes or claims arising or accruing on or after March 3, 2022.

That timing requirement can create complicated questions when conduct began earlier but continued after the effective date.

The Second Circuit has addressed cases involving both older and continuing conduct, including Olivieri v. Stifel, Nicolaus & Company.

A detailed timeline of the harassment, complaints, retaliation, and employer responses may be critical.

If my lawsuit includes sexual harassment, can my other claims also stay out of arbitration?

In September 2026, the Second Circuit held in Diaz-Roa v. Hermes Law that when the EFAA applies, a plaintiff may invalidate a predispute arbitration agreement as to the entire lawsuit, including non-harassment claims within that case.

That is an important development for New York employees whose lawsuits contain sexual harassment alongside retaliation, termination, compensation, or other claims.

The EFAA still must actually apply to the case. Simply labeling a dispute as sexual harassment does not necessarily make an otherwise enforceable arbitration agreement disappear.

What should I look for in my onboarding documents?

Look for any document discussing arbitration or dispute resolution. That may include your offer letter, employment agreement, stand-alone arbitration agreement, employee handbook acknowledgment, compensation agreement, Form U4 materials, or electronic onboarding documents.

Preserve the exact versions you signed and the dates you signed them. You should also preserve later amendments or new policies that you acknowledged during your employment.

An attorney at Morgan & Morgan reviewing a potential sexual harassment case may need to determine whether your employer is relying on FINRA rules, a private employment agreement, or both, and whether the federal EFAA affects enforceability.

Finding an arbitration provision does not necessarily mean you have lost the ability to pursue your case in court.