Wage and hour claims cannot be arbitrated in sexual harassment cases

Two recent decisions from the California Courts of Appeals could have enormous implications for employers seeking to enforce arbitration agreements. In particular, each court found that the Ending Forced Arbitration of Sexual Harassment Act (“EFAA”) prohibits the separation and arbitration of wage and hour claims that are part of the same lawsuit as a sexual harassment claim. These holdings give plaintiffs’ lawyers a new tool to avoid arbitration agreements and keep cases in court. Accordingly, California employers should be prepared for an influx of sexual harassment claims linked to otherwise unrelated wage and hour lawsuits.

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 electing the person who alleges conduct constituting a sexual harassment dispute or a sexual violence dispute, . . . no pre-dispute arbitration agreement or pre-dispute class action waiver shall be valid or enforceable with respect to to a case that is filed under federal, tribal, or state law and relates to the sexual assault dispute or sexual harassment dispute. (emphasis added). Simply put, the EFAA allows an individual filing a sexual harassment or assault claim to opt out of a mandatory arbitration provision to which they might otherwise be bound.

As discussed below, the use of the word “case” in the statute instead of the word “claim” had important consequences for the California courts presiding over these cases.

Into the lawsuit Doe v. Second Street Corp.

In DoIn February 2023, the plaintiff filed a lawsuit against her former employer, a hotel and two individual supervisors. The plaintiff alleged that another co-worker (who is not a party to the lawsuit) sexually assaulted her in October 2019. Due to the alleged assault, the plaintiff requested not to be scheduled for shifts with the coworker who allegedly victimized her. However, as of October 2021, the plaintiff’s supervisor allegedly dismissed her concerns and began scheduling her to work with the allegedly offending coworker. In May 2022, the plaintiff’s doctors advised her to stop working because she was suicidal. The complainant has not returned to work since then. In her lawsuit, the plaintiff asserted eleven claims – three relating to the alleged sexual harassment; six for wage and hour violations; and two for slander and libel.

The employer filed a motion to compel arbitration of the entire case, which the court denied. The court ruled that all of the plaintiff’s claims were subject to the EFFA because the statute “nullifies an arbitration clause relating to the entire case.” Therefore, the court reasons, the arbitration provision is in effect Do none of the plaintiff’s claims 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.

Into the lawsuit Liu v. Miniso Depot CA, Inc.

A week later Do it was decided, Liu was issued. Liu, who is a lesbian and dresses unisex, sued her former employer, Miniso, in October 2023. The lawsuit alleges that Miniso employees made unwanted comments to Liu. Liu alleged, among other things, that employees made comments about her appearance and that employees would describe homosexuals as “creepy.” Liu also alleged that she was wrongly classified as an exempt employee and that Miniso had not been paid her minimum wage, overtime, and any hours she worked.

In her lawsuit, Liu filed a case for sexual harassment. But Liu also listed claims for whistleblower retaliation, constructive discharge and various wage and hour violations under the California Labor Code.

Miniso has filed a motion to compel arbitration. In her motion, Miniso argued that Liu’s complaint did not move the EFAA because her allegations — which were deemed true — could not legally support a sexual harassment claim. The court denied Miniso’s request and refused to compel arbitration. In doing so, the court found that EFAA does not employ or require pleading sufficiency analysis to determine whether a plaintiff’s claim is governed by the law. And, like Dothe court ruled that the EFAA prohibits arbitration in the plaintiff’s entire case.

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

The appellate courts confirm this

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

The Do The court focused on the term “case” in concluding 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.” A “claim,” the court said, is considered the basis for recovery, while a “case” encompasses the entire legal process. Accordingly, EFAA’s use of the word “case” expands the statute to include the plaintiff’s entire lawsuit, and not just individual claims. In reaching this conclusion, the court made a distinction Do from a federal case, Mera v SA Hospitality Group, Inc.which involved a sexual harassment claim and a wage and hour class action. The Mera The court reasoned that the class claims were severable from the sexual harassment claim and arbitrable since the class claim was “in no way related to the sexual harassment dispute.” Conversely, the Do The court concluded that while not all of the plaintiff’s claims “arise out of her allegations of sexual harassment,” the “case” as a whole undoubtedly “involves” a sexual harassment dispute. In reaching this conclusion, the court noted with interest that all of the plaintiff’s claims were brought against the same defendants and arose out of her employment with the hotel. Thus, the court concluded that the EFAA also prohibited mandatory arbitration of the plaintiff’s wage and hour claims.

The Court of Appeal Liu came to the same conclusion. The Liu The court similarly distinguished between the terms ‘claim’ and ‘case’. The court reasoned that if Congress wanted the EFAA to hear only parts of a “case,” it would have used the word “claim” instead. But the court is in Liu went even further. Instead of trying to differentiate Mera on the basis that the case was a wage and hour class action, the Liu court easily found Mera not convincing. In particular the Liu court reasoned that Mera impermissibly added language to the EFAA to conclude that a “case” can be bifurcated. Finding the language of the EFAA unambiguous, the Liu The court also declined to consider the statute’s legislative history in making its ruling.

Key Takeaways

Liu And Do could have enormous consequences for California employers. In the short term, employers may see a spike in the number of potentially frivolous sexual harassment claims being added to wage and hour lawsuits as plaintiffs’ attorneys seek to avoid arbitration. But the problem can be relatively short-lived. In all likelihood, the California Supreme Court or the United States Supreme Court will ultimately consider whether EFAA’s impact is as broad as Liu And Do have kept.

For now, employers should continue to vigorously assert arbitration defenses through their responses to preserve their right to arbitrate claims in the event Liu And Do have fallen over. Employers should nevertheless continue to attempt to enforce arbitration Liu And Do by distinguishing these cases in every possible way.

As always, employers should consult with an experienced employment law attorney for strategies in light of the changing legal landscape.