A three-judge panel for the Colorado Court of Appeals convened on Tuesday to hear oral arguments in a case that could fundamentally redefine the scope of employment litigation within the state. At the heart of the dispute is the interpretation of the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA), specifically the breadth of the phrase "related to" as it pertains to retaliation claims. The case, involving a Denver-based adult entertainment venue and a former bartender, represents a critical battleground in the ongoing national effort to reconcile mandatory arbitration agreements with new federal protections for victims of workplace misconduct.
The litigation began when a former employee of the Diamond Cabaret, a well-known strip club in downtown Denver, filed a lawsuit alleging that she was subjected to a hostile work environment and subsequently terminated in retaliation for reporting incidents of sexual harassment. The club moved to compel arbitration, citing a mandatory arbitration clause included in the bartender’s initial employment contract. However, the plaintiff argued that the EFAA, signed into law in 2022, renders such clauses unenforceable not only for the harassment claims themselves but also for the "related" retaliation claims that followed.
The Legal Framework: Understanding the EFAA
To understand the stakes of Tuesday’s oral arguments, it is necessary to examine the legislative intent and statutory language of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. Enacted with rare bipartisan support and signed by President Joe Biden on March 3, 2022, the EFAA amended the Federal Arbitration Act (FAA) to prohibit the enforcement of pre-dispute arbitration clauses in cases involving sexual assault or sexual harassment.
The act was designed to prevent employers from using the private, often confidential, forum of arbitration to "bury" allegations of systemic abuse. Under the EFAA, a plaintiff asserting a sexual assault or harassment claim has the unilateral right to void an arbitration agreement and pursue their day in public court. However, the statute’s application to "mixed" cases—those involving both harassment and other employment claims like wage theft, discrimination based on race, or retaliation—remains a subject of intense judicial scrutiny.
The specific language in 9 U.S.C. § 402(a) states that an arbitration agreement shall not be valid or enforceable "with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute." The Colorado Court of Appeals is now tasked with determining whether a retaliation claim "relates to" a harassment dispute closely enough to pull the entire case out of arbitration.
Chronology of the Dispute
The path to the Colorado Court of Appeals began in late 2024, following the bartender’s departure from the Diamond Cabaret. According to court filings, the plaintiff alleged that during her tenure, she was subjected to repeated unwanted physical contact and verbal harassment by both patrons and management. She asserted that despite following internal reporting protocols, the management failed to intervene, instead creating a punitive environment.
In early 2025, the plaintiff filed her formal complaint in Denver District Court. The complaint included multiple counts: sexual harassment under the Colorado Anti-Discrimination Act (CADA), wrongful termination, and retaliation. The Diamond Cabaret responded by filing a motion to compel arbitration, arguing that while the EFAA might shield the sexual harassment claims from arbitration, the retaliation and wrongful termination claims were distinct legal issues governed by the original employment contract.
The trial court initially ruled in favor of the plaintiff, citing the "plain language" of the EFAA. The judge noted that because the retaliation was allegedly triggered by the reporting of harassment, the claims were inextricably linked. The club promptly appealed, leading to the June 2026 oral arguments where the panel questioned both sides on the limits of federal preemption and the definition of a "case."
Arguments Before the Appellate Panel
During Tuesday’s session, counsel for the Diamond Cabaret argued that the EFAA should be interpreted narrowly. The defense contended that allowing every claim tangentially connected to a harassment allegation to bypass arbitration would "eviscerate" the Federal Arbitration Act and decades of Supreme Court precedent favoring the enforcement of contracts.
"The EFAA is a specific exception to a general rule," the club’s attorney argued. "If Congress intended for every retaliation claim to be exempt from arbitration, it would have explicitly included ‘retaliation’ in the text of the statute. By limiting the language to ‘sexual assault’ and ‘sexual harassment’ disputes, the law maintains a boundary that the plaintiff is attempting to cross."
Conversely, the attorney representing the former bartender argued that the word "case" in the statute is the operative term. They posited that the EFAA does not merely exempt "claims," but entire "cases" that relate to harassment.
"The retaliation didn’t happen in a vacuum," the plaintiff’s counsel told the panel. "It was the direct result of her opposing the harassment. To split this case into two forums—arbitration for retaliation and district court for harassment—would be inefficient, costly, and contrary to the spirit of the EFAA, which seeks to empower victims to speak out without fear of being silenced in a private room."
Supporting Data and Judicial Trends
The Colorado case follows a series of similar challenges across the United States. Data from the Economic Policy Institute suggests that more than 60 million American workers are currently subject to mandatory arbitration clauses. Since the passage of the EFAA, legal analysts have tracked a "split" in how lower courts handle mixed-claim lawsuits.
In the Southern District of New York, the influential ruling in Johnson v. Everyrealm Inc. (2023) set a precedent that if a case involves at least one plausible claim of sexual harassment, the entire case—including non-harassment claims—must remain in court. The court in that instance interpreted the EFAA’s use of the word "case" as a mandate for "wholesale" removal from arbitration.
However, other jurisdictions have been more hesitant. Some courts in the Midwest and South have experimented with "claim-splitting," where the harassment claims proceed to trial while the remaining employment disputes are stayed pending arbitration. The Colorado Court of Appeals’ decision will be a landmark for the Rocky Mountain region, potentially influencing how Montana, Utah, and New Mexico interpret similar filings.
Reaction and Broader Implications
Legal experts and advocacy groups are watching the Colorado proceedings closely. Organizations such as the National Women’s Law Center have argued that retaliation is a "tool of the harasser," and separating the two claims would effectively punish the whistleblower by forcing them to litigate in two different venues simultaneously.
"Retaliation is the flip side of the same coin," said Sarah Henderson, a Denver-based employment law specialist not involved in the case. "If the court decides that retaliation claims can be forced into arbitration while the underlying harassment claim stays in court, it creates a massive loophole for employers. They could effectively use the cost and complexity of dual-track litigation to pressure plaintiffs into unfavorable settlements."
On the other side, business advocacy groups warn of "litigation creep." They argue that if "related to" is interpreted too broadly, plaintiffs will append minor or meritless harassment allegations to every employment dispute simply to avoid arbitration, thereby increasing the burden on the public court system and increasing legal costs for small businesses.
Analysis of Potential Outcomes
The panel, consisting of three judges with varying backgrounds in civil and contract law, appeared focused on the procedural efficiency of the EFAA. One judge pointedly asked whether "judicial economy" should play a role in the interpretation, noting that having the same set of facts decided by both a jury and an arbitrator could lead to inconsistent results.
There are three primary directions the court could take:
- The "Wholesale" Approach: The court could adopt the New York model, ruling that the presence of a harassment claim "infects" the entire case, allowing all claims (retaliation, wage issues, etc.) to proceed in open court.
- The "Severability" Approach: The court could rule that only the claims specifically mentioned in the EFAA (assault and harassment) are exempt, requiring the retaliation claim to be arbitrated.
- The "Nexus" Test: The court could create a middle-ground test, where retaliation is only exempt from arbitration if the plaintiff can prove the retaliatory act was a direct and immediate consequence of the harassment report.
As the Colorado Court of Appeals takes the matter under advisement, the legal community anticipates a written opinion by late summer. The ruling will likely serve as a definitive guide for Colorado employers on how to draft future employment agreements and for employees on the extent of their rights under federal law. Regardless of the outcome, the case highlights the evolving friction between the tradition of private contract enforcement and the modern push for transparency in workplace conduct.
