California Courts Significantly Expand Scope of “Act Ending Compulsory Arbitration in Sexual Harassment” | Sheppard Mullin Richter & Hampton LLP

Two recent decisions from the California appellate courts could have massive implications for employers seeking to enforce arbitration agreements. Specifically, each court held that the Ending Forced Arbitration of Sexual Harassment Act (“Ending Forced Arbitration of Sexual Harassment Act”)EFAA“) prohibits the separation and arbitration of wage and hour claims that are part of the same claim as a sexual harassment claim. These holdings give plaintiffs’ attorneys a new tool to scuttle arbitration agreements and keep cases in trial. Accordingly, California employers should be prepared for a flood of sexual harassment claims that will be linked to otherwise unrelated wage and hour claims.

The EFAA

In March 2022, Congress passed the EFAA to exclude sexual harassment claims from mandatory arbitration provisions. In relevant part, the EFAA states: “In choosing the person alleging conduct constituting a dispute of sexual harassment or sexual assault…” . . No pre-dispute arbitration agreement or pre-dispute waiver of joint action shall be valid or enforceable in this regard to a case that are filed under federal, tribal, or state law and relate to the dispute of sexual assault or sexual harassment” (emphasis added). Simply put, the EFAA allows a person bringing a sexual harassment or sexual assault claim to opt out of a mandatory arbitration clause to which they might otherwise be bound.

As discussed below, the statute’s use of the word “case” instead of the word “claim” has had important implications for the California courts that have jurisdiction over these matters.

The lawsuit in Doe v. Second Street Corp.

In doeThe plaintiff filed suit in February 2023 against her former employer, a hotel, and two individual supervisors. The plaintiff alleged that another colleague (who is not involved in the lawsuit) sexually assaulted her in October 2019. Because of the alleged sexual assault, the plaintiff requested not to be scheduled on shifts with the co-worker who allegedly bullied her. However, beginning in October 2021, the plaintiff’s supervisor allegedly dismissed her concerns and began scheduling her to work with the allegedly offending colleague. In May 2022, the plaintiff’s doctors recommended that she stop working because she was at risk of suicide. The plaintiff has not returned to work since then. In her lawsuit, the plaintiff filed eleven claims – three related to the alleged sexual harassment; six for wage and hour violations; and two for libel and slander.

The employer filed a motion to compel arbitration of the entire case, but the trial court denied it. The court found that this was the case all of the plaintiff’s claims were subject to the EFFA because the law “invalidates an arbitration clause for the entire case.” Therefore, the court justified the arbitration provision in doe No claim by the plaintiff could be enforced –not just those who allege sexual harassment.

The employer appealed the trial court’s decision to the California Court of Appeal – Second Appellate District, Division Three.

The lawsuit in Liu v. Miniso Depot CA, Inc.

A week later doe it was decided Liu was issued. Liu, who is a lesbian and dresses in a unisex style, sued her former employer Miniso in October 2023. The lawsuit alleges that Miniso employees made unwelcome comments toward Liu. Liu alleged, among other things, that employees made comments about her appearance and that employees called homosexuals “creepy.” Liu also claimed that she was misclassified as an exempt employee and that Miniso did not pay her minimum wage, overtime and the hours she worked.

In her lawsuit, Liu filed a sexual harassment claim. But Liu also brought claims of whistleblower retaliation, constructive dismissal and various wage and hour violations under California labor law.

Miniso filed a motion to compel arbitration. In his motion, Miniso argued that Liu’s complaint was not brought to the attention of EFAA because her allegations, if considered true, could not legally support a claim of sexual harassment. The trial court denied Miniso’s motion and refused to compel arbitration. In doing so, the trial court concluded that the EFAA does not apply or require a pleading sufficiency analysis to determine whether a plaintiff’s claim is covered by the statute. And so doeThe trial court ruled that the EFAA had precluded arbitration in the plaintiff’s entire case.

Miniso appealed to the California Court of Appeals – Second Appellate District, Division One.

The appeals courts affirm

Each appellate court affirmed the trial court’s decision. Specifically, both appeals courts ruled that the EFAA covers a plaintiff’s entire case—not just the sexual harassment claims raised therein.

The doe The court focused on the term “case” and concluded that the EFAA prohibited arbitration of the plaintiff’s wage and hour claims. First, the court noted the difference between a “claim” and a “case.” According to the court, a “claim” is considered the basis for recovery, whereas a “case” encompasses the entire legal process. Accordingly, EFAA’s use of the word “case” expands the law to cover the plaintiff’s entire lawsuit and not just individual claims. In reaching this conclusion, the court distinguished doe from a federal case, Mera v. SA Hospitality Group, Inc.which involved a sexual harassment lawsuit and a wage and hour class action lawsuit. The Mera The court concluded that the class actions could be separated from the sexual harassment claim and arbitrated because the class action was “in no way related to the sexual harassment dispute.” It’s the other way around doe The court concluded that while not all of the plaintiff’s claims “arise from her allegations of sexual harassment,” the “case” as a whole is undoubtedly “connected” to a sexual harassment dispute. In reaching this conclusion, the court emphasized that all of the plaintiff’s claims were brought against the same defendants and arose from her employment relationship with the hotel. Therefore, the court concluded that the EFAA also prohibits mandatory arbitration of plaintiff’s wage and hour claims.

The Court of Appeal in Liu came to the same conclusion. The Liu The court similarly distinguished between the terms “claim” and “case.” The court concluded that if Congress wanted the EFAA to cover only parts of a “case,” it would have used the word “claim” instead. But the judgment is there Liu went even further. Instead of trying to differentiate Mera on the basis that this case was a wage and hour class action lawsuit, which Liu Easy to find dish Mera not convincing. Specifically that Liu The court justified this Mera improperly added words to the EFAA to conclude that a “case” could be split. Since the language of the EFAA is clear, the Liu The court also declined to consider the legislative history of the law in making its decision.

Key insights

Liu And doe could have a massive impact on California employers. In the short term, employers could see a rise in potentially frivolous sexual harassment claims on top of wage and hour lawsuits – as plaintiffs’ lawyers try to avoid arbitration. But the problem could be relatively short-lived. In all likelihood, the California Supreme Court or the United States Supreme Court will ultimately consider whether the EFAA’s impact is as far-reaching as it is Liu And doe have held.

For now, employers should continue to vigorously assert arbitration defenses in their responses to protect their right to arbitration in this case Liu And doe are knocked over. Employers should still attempt to compel arbitration Liu And doe by distinguishing these cases by all possible means.

As always, employers should consult with an experienced labor and employment litigation attorney to strategize in light of the changing legal landscape.