Recent California Appellate Decisions May Impact Enforcement of Employment Arbitration Agreements

Recent California Appellate Decisions May Impact Enforcement of Employment Arbitration Agreements

Two recent decisions from California Courts of Appeal could create a significant impact for employers looking to enforce arbitration agreements.

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act

In 2022, Congress enacted a law that prohibits employers from requiring employees to arbitrate disputes concerning sexual assault or harassment. The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFFA) went into effect immediately. It reads in pertinent part as follows:

At the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, . . . no predispute arbitration agreement or predispute joint-action waiver shall 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.

In other words, the law allows an individual bringing a claim for sexual harassment or sexual assault to opt out of a mandatory arbitration provision to which they may otherwise be bound. In these recent California decisions, the law’s use of the word “case,” rather than “claim,” presented a significant distinction.

Doe v. Second Street Corp.

The plaintiff brought a lawsuit against Second Street Corporation doing business as the Huntley Hotel and two of its supervisors. She alleged a pattern of sexual harassment and discrimination both before and after the EFAA's effective date, as well as a variety of wage-and-hour violations.

In October 2019, the plaintiff was attacked and sexually assaulted outside of work by a coworker (the “attacker”), who is not a party to the lawsuit. In October 2021, the hotel hired a new food and beverage director (the “director”). During his training, the plaintiff‘s manager told him that a coworker sexually assaulted plaintiff and that he shouldn’t be scheduled with her unless it was absolutely necessary.

The next month, the director called the plaintiff into his office and asked for details of the assault. The plaintiff said she didn’t feel comfortable describing it, but he said he was going to schedule her and her attacker together unless she told him. After she described the assault, the director told her it was her fault. The next day, he scheduled the plaintiff and her attacker to work on the same shift, and after that, she and the attacker were regularly scheduled to work together.

As a result, the plaintiff began throwing up before nearly every shift. In February 2022, another manager told the general manager that the plaintiff and her attacker had a consensual sexual relationship.

In April 2022, plaintiff ran into her attacker when she arrived for her shift. She ran up to the stairwell and tried to access the roof, but the exit code to the roof access door had been changed. She was relieved because she had thoughts of jumping off the roof. When she came down the stairs, the director saw that she was crying and asked, “‘Is this work-related?’” He then “looked her up and down and … walked away.”

In early May 2022, when the director saw the plaintiff, he loudly asked another employee, “What’s the new code to the roof?” The plaintiff began to have another panic attack and called in sick. Several days later, she reported to her doctor that she was suicidal and was placed on an involuntary psychiatric hold. On the advice of her doctors, she didn’t return to work.

The plaintiff's complaint asserted 11 causes of action, including sexual harassment and hostile work environment in violation of the California Fair Employment and Housing Act (FEHA); failure to prevent discrimination, harassment, and retaliation; retaliation; failure to pay minimum or overtime wages; failure to pay split shift premiums; failure to provide meal breaks, rest periods, and accurate pay stubs; slander; and libel.

The defendants moved to compel arbitration, citing an arbitration provision in the hotel's employee handbook. But the trial court denied the motion to compel, finding that the EFAA rendered the arbitration provision unenforceable as to all of plaintiff's claims. The trial court also granted plaintiff leave to file an amended complaint to add additional claims, including a claim for constructive wrongful termination.

Specifically, the trial court found that the plaintiff's claims accrued after March 3, 2022, the EFAA's effective date, and weren’t subject to mandatory arbitration. Further, even if some of plaintiff's causes of action didn’t allege sexual harassment or sexual assault, the Act makes an arbitration agreement unenforceable with respect to a “case,” not merely “‘the claim or claims in which the sexual harassment dispute plays a part.’”

In other words, the EFAA invalidates an arbitration clause as to the entire case; as a result, the arbitration provision couldn’t be enforced against any of the plaintiff's claims, not just those alleging sexual harassment. The court denied the employer’s motion to compel arbitration, and they appealed.

The Court of Appeal held that the Act allows plaintiffs the option to invalidate an arbitration agreement provided that they allege at least one act of sexual assault or sexual harassment occurring after March 3, 2022. In addition, when plaintiffs assert both harassment and non-harassment claims, they can invalidate the arbitration agreement with respect to the entire case, rather than only the harassment claims. Even though not all the plaintiff's causes of action arose out of her sexual harassment allegations, the Court of Appeal said that the case related to the sexual harassment dispute, and thus the arbitration agreement was unenforceable as to each cause of action alleged.

Liu v. Miniso Depot CA, Inc.

A second case was decided the following week. The plaintiff said she “identifies as lesbian and dresses in a unisex non-gender specific style.” She asserted that during her employment “she and others in her presence were subjected to unwelcome, severe and pervasive sexual harassment, sex discrimination and race discrimination, sexual orientation/gender harassment and sexual harassment/gender discrimination.”

The plaintiff alleged the following specific incidents and types of offensive conduct:

  • The CEO and others at Miniso commented on her appearance during company meetings;
  • The CEO twice suggested during meetings that if Miniso's products looked like the plaintiff, no one would buy them;
  • The CEO remarked that the plaintiff was unattractive because she was “too skinny” and that she needed to eat more to have more curves;
  • During meetings, the CEO compared the plaintiff's body with that of another female employee;
  • The CEO would compare other female employees with toys sold by Miniso;
  • Male managers referred to female employees as “little girls”;
  • In her presence, the defendants called gay people “creepy” and would comment that “a man should do what a man should do, and a woman should do what a woman should do”;
  • While discussing a product decorated with a rainbow, the CEO looked at the plaintiff and commented, “Who would want to buy that?”; and
  • The defendants mockingly referred to the plaintiff as “Brother Jade.”

In her suit, the plaintiff brought a cause of action for sexual harassment but also included claims for whistleblower retaliation, constructive discharge, and various wage and hour violations under the California Labor Code.

The employer filed a motion to compel arbitration. In its motion, Miniso argued that Liu’s complaint didn’t trigger the EFAA because her allegations—taken as true—couldn’t support a sexual harassment claim as a matter of law. The trial court denied Miniso’s motion and refused to compel arbitration. The trial court reasoned that the EFAA doesn’t employ or require a pleading sufficiency analysis to determine whether a plaintiff’s claim falls under the statute.

Like Doe, the trial court held EFAA barred arbitration of the plaintiff’s entire case.

The plaintiff appealed to the California Court of Appeal, which affirmed the decision of the superior court. The Court said that the plain language of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 exempts all causes of action in a complaint asserting both sexual harassment and non-sexual harassment claims from arbitration. The Court cited the use of the word "case" in 9 U.S.C. § 402(a), which ordinarily meant a legal proceeding as an undivided whole. As such, the trial court didn’t err in denying a motion to compel arbitration as to both sexual harassment and other employment-related claims.

In addition, the Court opined:

Allowing a plaintiff alleging conduct constituting a sexual harassment dispute to opt out of arbitration for their entire case avoids the potential for inefficiency in having separate proceedings in court and an arbitration forum, and the related additional burden placed on the parties of having to litigate claims in both a court proceeding and an arbitration. In addition, having a clear-cut rule that can be easily applied allows courts to avoid making the sometimes-difficult determination, particularly at the pleading stage, whether a given claim sufficiently overlaps with allegations of sexual harassment.

The Court found the EFAA’s language to be unambiguous and refused to consider the statute’s legislative history.

Takeaway

Each Court of Appeal held that the Ending Forced Arbitration of Sexual Harassment Act does not allow splitting off arbitration of wage and hour claims that are part of the same suit as a sexual harassment claim.

As a result, employees may leverage this to defeat arbitration agreements and keep cases in litigation. Moreover, California employers may see more sexual harassment claims piggybacked on otherwise unrelated wage and hour lawsuits.

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