Contributors

Arevik Sargsyan

Associate

Lawsuits involving sexual, gender-based, and sexual orientation harassment claims may circumvent arbitration under valid arbitration agreements. Recently, a California Court of Appeal held that sexual harassment claims covered under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“EFAA”) preclude the entire lawsuit form arbitration by the plain language of the statute, even if the lawsuit involves non-sexual harassment claims.[1] This decision underscores the potentially far-reaching consequences of the EFAA on California employers.

The FAA and EFAA

The Federal Arbitration Act (“FAA”)[2] is a federal law that governs the non-judicial resolution of disputes between parties involved in interstate commerce. In California, many arbitration agreements between employers and employees are governed by the FAA as a matter of contract law—by the agreement of the parties. In 2021, Congress enacted the EFAA.[3] This amended the FAA, exempting sexual harassment claims from mandatory arbitration pursuant to arbitration agreements between employees and employers governed by the FAA.

Factual and procedural background in Liu v. Miniso Depot CA, Inc.

In Liu, the Plaintiff brought forth claims not only for sexual harassment, but also retaliation, constructive termination, intentional inflict of emotional distress, and wage and hour violations. Defendant filed a motion to compel arbitration of all of Plaintiff’s claims under the FAA pursuant to the arbitration agreement Plaintiff signed when she accepted the job offer. Plaintiff argued that based on the EFAA, the amendment to the FAA, her sexual harassment claim precluded her entire lawsuit from arbitration. She prevailed at trial. On appeal, the Defendant agreed that the EFAA precluded arbitration of the sexual harassment and sexual orientation claims but argued that the remaining claims were not covered under the EFAA and were severable for purposes of arbitration.

The California Court of Appeal’s holding and reasoning in Liu v. Miniso Depot CA, Inc.

The California Court of Appeal affirmed the trial court, reasoning that under the plain language of the EFAA, the EFAA specifically exempts the entire “case” from arbitration rather than just the sexual harassment dispute or claim. The EFAA reads, in relevant part, “at the election of the person alleging conduct constituting a sexual harassment dispute… no pre-dispute arbitration agreement… shall be valid or enforceable with respect to a case… which is filed under… [s]tate law and relates to… the sexual harassment dispute.” FAA, 9 U.S.C. Section 402(a). The Court of Appeal explained that, because Congress chose the term “case,” rather than “claim,” the EFAA exempts the entire case from arbitration.

The Court held that if a plaintiff’s lawsuit contains at least one claim that fits within the scope of the EFAA, the arbitration agreement is unenforceable as to all claims asserted in the lawsuit.[4] It also noted that this interpretation of the EFAA is commonsensical since it avoids the inefficiency and burden of two separate proceedings in arbitration and court.

Key Takeaway

Employers who agree to arbitrate disputes under the FAA with their employees may be hauled to court for lawsuits involving sex-based, gender-based, or sexual orientation-based claims, even if such claims are only a part of the larger lawsuit.

[1] Liu v. Miniso Depot CA, Inc., et al. (Cal. Ct. App. Oct. 7, 2024) No. B338090, 2024 WL 4446693.

[2] FAA § 1, et seq.

[3] 9 U.S.C. §§ 401-402.

[4] Other courts have recently reached a similar result. E.g., Doe v. Second Street Corp. (Sept. 30, 2024, B330281) ___ Cal.App.5th ___ [2024 WL 4350420] (the EFAA applied to the entire case, not just the sexual assault or sexual harassment claims); Johnson v. Everyrealm, Inc. (S.D.N.Y. 2023) 657 F.Supp.3d 535, 561 (holding that if a complaint includes a claim for sexual harassment to which the EFAA applies, the arbitration agreement is unenforceable with respect to a plaintiff’s entire case); Turner v. Tesla, Inc. (N.D.Cal. 2023) 686 F.Supp.3d 917, 925 (same).