Colorado’s second-highest court issued two decisions in recent weeks that clarified the limits on mandatory arbitration, including for cases that raise workplace sexual harassment claims.

While arbitration can be a more efficient and private form of dispute resolution compared to a lawsuit, it can also lack transparency and generally leaves a person without an avenue to appeal.

In a July 9 decision, a three-judge Court of Appeals panel agreed that a federal law exempting sexual harassment claims from forced arbitration applies to an entire case, so long as the other allegations are related to the sexual harassment.

Dana Dreifus was a bartender at the Diamond Cabaret strip club in Denver. She complained that her supervisor was sexually harassing her. The company allegedly responded with a series of retaliatory actions against Dreifus. She turned to federal and state civil rights enforcement bodies, then filed a lawsuit for violations of the Colorado Anti-Discrimination Act. Several weeks later, Diamond Cabaret fired her.

Dreifus then moved to amend her complaint to add further allegations of retaliation leading up to her termination, including through her cooperation with the city’s wage theft investigation. The defendants objected, citing a 2021 federal law governing arbitration agreements.

The recently enacted Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) carved out claims “arising from sexual harassment” from otherwise binding arbitration agreements. The exception applies to “a case” relating to “the sexual harassment dispute.”

Because Dreifus had a mandatory arbitration agreement with her employer and the allegations surrounding her termination were not related to her original claims of sexual harassment, the new retaliation allegations were required to go to arbitration, the defendants argued.

“This claim is not distinct or separate from her claim of retaliation,” wrote Denver District Court Judge Andrew P. McCallin in rejecting the defendants’ arguments. “Therefore, the EFAA precludes enforcement of the arbitration agreement in this case.”

Turning to the Court of Appeals, Diamond Cabaret and its parent companies maintained that the allegations of sexual harassment were distinct from the allegations that Diamond Cabaret fired Dreifus after she took legal action.

“So, what you’re saying is if an employer waits long enough to terminate an employee because she blew the whistle about sexual harassment,” said Judge Lino S. Lipinsky de Orlov during oral arguments, “then any legal claim based on that termination can be arbitrated, despite the EFAA language?”

“Not if it’s related to sexual harassment,” responded attorney Leah P. VanLandschoot for Diamond Cabaret.

“She’s saying, ‘I got fired for bringing a sexual harassment lawsuit,’” said Judge David H. Yun.

Ultimately, the appellate panel agreed that Dreifus’ new allegations regarding her termination could remain in her lawsuit rather than proceed to arbitration.

“Dreifus expressly alleged that her termination was based, at least in part, on her sexual harassment claim and her filing of this case,” wrote Judge Timothy J. Schutz in the opinion. “It necessarily follows that there was no basis for the district court to compel arbitration of any of her claims.”

The case is Dreifus v. Glenarm Dining Services, Inc. et al.

A separate Court of Appeals panel addressed the question of what happens when someone participates in arbitration proceedings for almost a year, but objects to the arbitrator’s authority before the arbitration hearing commences.

In a business dispute out of Jefferson County, James Wright sued his former business associate, Daniel Goldstein. Believing an arbitration agreement governed the dispute, Goldstein moved to compel arbitration. A judge sided with Goldstein.

Almost one year into the arbitration, and four days before the scheduled hearing, Wright objected to the arbitrator exercising authority over him individually, as opposed to his companies. The arbitrator determined Wright had given up his right to argue that he should not be a party to the arbitration.

District Court Judge Ryan P. Loewer agreed, pointing to Wright’s inconsistent objections throughout the case.

“Based on these inconsistencies and Plaintiffs’ failure to raise this specific objection before the arbitration proceedings, the Court declines to vacate the arbitration award as it pertains to Plaintiff Wright,” Loewer wrote.

But a three-judge appellate panel saw differently.

Judge Grant T. Sullivan, in the June 25 opinion, wrote that Colorado law requires judges to overturn arbitration decisions when there is no underlying agreement, so long as a person who participates in the proceedings objects “not later than the beginning of the arbitration hearing.”

“All here agree that Wright raised his objection to the arbitrator four days before the scheduled arbitration hearing. By doing so, Wright complied with the statute’s timing requirement,” wrote Sullivan.

He added that the panel disagreed with a different Court of Appeals decision from 2014, which found that an objection to the arbitrator before a hearing does not suffice when the objector has already participated in the arbitration proceedings.

“While the General Assembly could have required a party who believes no agreement to arbitrate exists to raise their objection earlier in the arbitration proceeding or in a prehearing motion to the court, it struck the balance differently by requiring only a prehearing objection to the arbitrator,” wrote Sullivan. “We can’t second-guess that legislative choice.”

The case is Wright et al. v. Goldstein et al.