Key Points

  • The Ninth Circuit held, 2-1, that the EFAA's phrase 'conduct that is alleged to constitute sexual harassment' means conduct asserted to amount to sexual harassment, not conduct pleaded plausibly enough to survive a motion to dismiss.
  • The majority, by Judge Friedland, said defendants who think harassment allegations are deficient can move to dismiss in court, where plaintiffs may amend, rather than use the deficiency to compel arbitration.
  • The panel held that retaliation for opposing alleged sexual harassment is a 'sexual harassment dispute,' so each fired SpaceX employee's retaliation claim kept that employee's entire case out of arbitration.
  • Judge Tung dissented, arguing that courts must decide whether pleaded facts, if true, would constitute sexual harassment under applicable law, and would have vacated and remanded.
  • The panel did not decide SpaceX's timeliness argument against one plaintiff's coworker-harassment claim or how the law applies to joint actions in which some plaintiffs lack a qualifying claim.

A divided federal appeals court ruled Nov. 10 that eight former SpaceX employees who say they were fired for protesting Elon Musk's sexually explicit social media posts may pursue their lawsuit in court, even though they signed agreements to arbitrate employment disputes.

The U.S. Court of Appeals for the Ninth Circuit held, 2-1, that a federal law exempting sexual harassment cases from forced arbitration is triggered when a worker asserts that the conduct at issue amounts to sexual harassment. Judge Michelle T. Friedland wrote for the majority, joined by Judge Danielle J. Forrest. Judge Eric C. Tung dissented, writing that under the majority's test a plaintiff need only "say the magic words" to void an arbitration agreement.

The decision rejects SpaceX's position that a judge weighing a motion to compel arbitration, a request to send a case to an arbitrator under a signed agreement, must first decide whether the harassment allegations would survive a motion to dismiss. The panel also held that a claim of retaliation for opposing alleged harassment is enough to keep a worker's entire case, including unrelated claims, in court.

The law at issue, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, amended the Federal Arbitration Act, which generally makes arbitration agreements enforceable. It lets a person "alleging conduct constituting a sexual harassment dispute" choose court over arbitration. It defines that dispute as one "relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law."

According to the complaint, Musk used his Twitter account, now X, to report company news such as rocket launches and interspersed it with sexually explicit posts and posts that demeaned women and LGBTQ persons. The employees allege the posts "permeated" the workplace. After news outlets reported on harassment allegations at SpaceX, the employees wrote an "Open Letter" to management asserting that the posts constituted "sexual harassment."

SpaceX fired four of the letter's identified authors the next day, citing their role in "conceiving, writing, and distributing the Open Letter," the opinion says. The company fired the other four after human resources investigations in which each admitted helping draft it. The eight sued in California state court, and the one claim all of them share is retaliatory termination. SpaceX answered the complaint without moving to dismiss it, removed the case to federal court and then moved to compel arbitration.

SpaceX argued that the law covers only harassment that is "adequately alleged," meaning a claim that meets the federal pleading standard, which requires enough factual detail to make a claim plausible. It contended that Musk's posts were not severe or pervasive enough to create a hostile work environment, so the employees could not "bootstrap" their way out of arbitration through retaliation claims. U.S. District Judge John A. Kronstadt of the Central District of California denied the motion.

Friedland wrote that the statute's phrase means "conduct that is asserted to amount to sexual harassment." She wrote that "when Congress wants to require allegations that meet the federal pleading standard, it has typically said so expressly," and that the arbitration law contains no such language. The panel noted that the circuit's two earlier decisions under the law had not resolved the question.

SpaceX had warned that plaintiffs could escape arbitration by "plac[ing] a 'sexual harassment' label on conduct that does not actually constitute sexual harassment." Friedland answered: "But there is an obvious remedy for that problem: the defendant may file a motion to dismiss." "The interpretive question is whether a court or an arbitrator is the one to rule on that motion to dismiss," she wrote.

The majority said SpaceX's reading would send some meritorious cases to arbitration without a chance to amend the complaint, because a plaintiff cannot immediately appeal an order compelling arbitration. "Orders compelling arbitration therefore almost invariably spell the end of a plaintiff's presence in court," Friedland wrote.

On retaliation, the panel held that when an employer allegedly punishes an employee for opposing alleged harassment, "their dispute over the retaliation is directly connected to 'conduct that is alleged to constitute sexual harassment.'" It cited a 2024 Second Circuit decision reaching the same view. Because each plaintiff brought a retaliation claim, each kept the "entire case" in court under the circuit's earlier ruling in Ding v. Structure Therapeutics. Congress passed the law "specifically to override that preference" for arbitration, Friedland wrote, "and to permit sexual misconduct claims to proceed in court."

Tung opened with a hypothetical employee fired after a fight with his boss over cafeteria food who then calls the dispute sexual harassment. The majority, he wrote, holds that "an employee can evade arbitration simply by saying that the dispute is about sexual harassment—even if the conduct alleged would not remotely constitute sexual harassment under the law." He continued: "A bare assertion, says the majority, is enough. No, it is not."

Read in context, Tung wrote, the statute means that "courts are to assess whether plaintiffs have pleaded facts that, if proven true, would constitute sexual harassment under applicable law." He would have vacated the order and returned the case for the district court to apply that standard, and he wrote that the majority had replaced "Congress's careful exception to the federal policy favoring arbitration with a gaping door no litigant can miss."

Anne B. Shaver of Lieff Cabraser Heimann & Bernstein LLP argued for the former employees. Michael E. Kenneally of Morgan Lewis & Bockius LLP argued for SpaceX. Shelby H. Leighton of Public Justice PC represented amici including Public Justice and the National Women's Law Center.

The ruling affirms the denial of arbitration, and the case remains before Kronstadt. The panel did not decide SpaceX's argument that one plaintiff's claim of harassment by coworkers accrued too early to fall under the law, saying the company "may raise any timeliness defense at a later stage of the proceedings." It also left open how the law applies in joint suits where not every plaintiff brings a claim premised on a sexual harassment dispute.