Sexual Harassment and Retaliation Lawsuit Against Employer not Subject to Arbitration Agreement Between Employee and Staffing Agency

On July 17, 2017, the 7th Circuit affirmed an order of the district court that denied an employer's motion to compel arbitration of an employee's Title VII sexual harassment and retaliation claims based on an arbitration agreement between the employee and the staffing agency who placed her with the employer. Scheurer v. Fromm Family Foods LLC, No. 16-3327 (7th Cir. July 17, 2017). The employee filed a sexual harassment and retaliation lawsuit under Title VII of the Civil Rights Act of 1964 ("Title VII"). The employee's contract with the staffing agency that placed her with the employer contained an arbitration clause. The employer moved to compel arbitration of the employee's claims, but the district court denied the motion.

The question on appeal was whether the employer, which did not have a written arbitration agreement with the employee, could enforce against her the arbitration clause in her agreement with the staffing agency. The 7th Circuit agreed with the district court that the employer failed to show a legal basis for compelling the employee to arbitrate her Title VII claims against the employer. This was a question of contract law. The employee filed her Title VII lawsuit for sexual harassment and retaliation against the employer, but not against the staffing agency. The Federal Arbitration Act ("FAA") requires federal and state courts to place written arbitration agreements on the same footing as other contracts. Under the FAA, arbitration should be compelled if three elements are present: (1) an enforceable written arbitration agreement; (2) a dispute within the scope of the arbitration agreement; and (3) a refusal to arbitrate. Generally, federal policy favors arbitration, and once an enforceable arbitration agreement is shown to exist, questions as to the scope of arbitrable issues should be resolved in favor of arbitration. The employer's theory--equitable estoppel--was rejected by the district court and the 7th Circuit. There was no evidence that the employer had relied upon the fact that the employee had signed an agreement with an arbitration provision when it accepted her assignment from the staffing agency. There was no basis for applying estoppel where the employer did not even know of the arbitration agreement and the staffing agency was not a party to the dispute. Thus, the employee's sexual harassment and retaliation claims will proceed in federal court.

The underlying facts of those claims are worth noting. The employee alleges that while working for the employer, her supervisor sexually harassed her. She alleges that her supervisor took advantage of his access to her personnel file to obtain her personal telephone number and repeatedly harassed her in unwelcome ways, including sexually explicit comments to her in front of other employees. The employee alleges that she complained to management, and that her supervisor had a history of sexual harassment and discrimination against women in the workplace. She also alleges that the employer took no adequate action to remedy the sexual harassment and instead fired her for complaining about the sexual harassment. The 7th Circuit stated that, "[f]rom the sequence of complaint, unspecified discipline of the supervisor, an unsuccessful effort to separate the two people, followed by termination of the complaining subordinate, the inference of retaliatory intent would not seem unreasonable."