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Doe v. Second Street Corp., No. B330281, 2024 WL 4350420 (Cal. Ct. App. Sept. 30, 2024)
Summary: The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act applies not just to sexual assault and sexual harassment claims, but to all claims asserted in the “case.”
Facts: In February 2023, Plaintiff Jane Doe sued her former employer, Second Street Corporation d/b/a The Huntley Hotel (“Hotel”) and two of its supervisors (collectively “Defendants”), alleging that she was sexually harassed and assaulted during her employment between October 2019 and May 2022. In March 2023, Defendants moved to compel arbitration based on employee handbook arbitration provisions Plaintiff had acknowledged in April 2016. Defendants argued that arbitration was not barred by the recently enacted Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“EFAA”) because her claims had accrued before the EFAA’s effective date (March 3, 2022).
In May 2023, Plaintiff filed a first amended complaint, adding a claim for constructive discharge and several other causes of action. She also opposed the motion to compel, arguing among other things, that her sexual harassment claim accrued on May 13, 2022, the day she was constructively discharged and after the EFAA’s effective date. The trial court denied Defendants’ motion. The court found that Plaintiff’s claims for sexual harassment and constructive discharge accrued on either the date of her constructive discharge or the date of the last act of alleged harassment, both of which were after the EFAA’s effective date. The court also held that Plaintiff’s other causes of action that did not allege sexual harassment or sexual assault were similarly not arbitrable because they were part of the same “case.” The Hotel appealed.
Court’s Decision: The California Court of Appeal affirmed. The Hotel argued that Plaintiff’s claims should have been sent to arbitration because her “claims accrued, or the ‘crux’ of the alleged wrongful conduct occurred,” meaning that she “could have initiated a legal action,” before the EFAA’s effective date. The court of appeal disagreed.
The EFAA provides: “Notwithstanding any other provision of this title, 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.” The court noted that the statute “provide[s] two distinct calculations, either of which is sufficient to trigger the EFAA: when the ‘dispute[] . . . arise[s]’ and when the ‘claim[] . . . accrue[s].’” Acknowledging an absence of California authority on when a sexual harassment claim “accrues” under the EFAA where a plaintiff alleges sexually harassing conduct occurring both before and after the EFAA’s enactment, the court followed federal authority holding that the EFAA applies in such cases. In so doing, the court presumed that when Congress used the word “accrue” in the EFAA it intended to import the meaning long used in sexual harassment cases, that such claims accrue “on the date of the last act constituting such violation, even if the conduct could have been actionable earlier.”
Because Plaintiff alleged actionable sexual harassment that continued through May 2022, the EFAA applied to her case. The court also agreed with Plaintiff that the EFAA applied to her entire case, not just her sexual harassment claims. The EFAA applies to “a case which . . . relates to the sexual assault dispute or the sexual harassment dispute,” and, thus, “[b]y its plain language . . . the statute applies to the entire case, not merely to the sexual assault or sexual harassment claims alleged as a part of the case.”
Practical Implications: This decision will have significant implications for the enforceability of employment arbitration agreements. Sexual harassment and assault claims are often among a number of distinct claims that are asserted in a single employment “case.” In such cases, the EFAA will now operate to preclude arbitration of all claims, not just the sexual harassment/assault claims. As this issue arises under federal law, we expect to see more action on this question in the federal courts.
Ronderos v. USF Reddaway Inc., 114 F.4th 1080 (9th Cir. 2024)
Summary: An arbitration agreement was permeated with unconscionability and severance of the unconscionable terms was not warranted under California law where the arbitration agreement was adhesive and therefore procedurally unconscionable to a moderate degree and contained two substantively unconscionable terms: a one-sided filing provision with a one-year statute of limitations and notice requirements only for the employee and a one-sided preliminary injunction carve-out preserving only the employer’s ability to seek preliminary injunctive relief in court.
Facts: Defendant USF Reddaway Inc. required Plaintiff Jose Emilio Ronderos to sign an arbitration agreement when he applied to work for Defendant as a line haul manager. After Defendant terminated Plaintiff, Plaintiff filed claims for age and disability discrimination, retaliation, and failure to accommodate his disability. Defendant moved to compel arbitration. Plaintiff argued that the arbitration agreement was both procedurally and substantively unconscionable. Defendant conceded (1) that the arbitration agreement was a contract of adhesion, because it was a pre-printed form that was presented to Plaintiff on a take-it-or-leave-it basis with no opportunity to negotiate; and (2) that two of the agreement’s terms were unenforceable under California law: a one-year statute of limitations that starts to run the date the claim arises; and a one-sided preliminary injunction carve-out preserving only the employer’s ability to seek preliminary injunctive relief in court. However, Defendant argued that the court could sever those provisions and enforce the remainder of the agreement by compelling arbitration. The district court denied Defendant’s motion. It concluded that the agreement was procedurally unconscionable to a moderate degree and contained multiple substantively unconscionable provisions. It declined to sever the unconscionable provisions. Defendant appealed.
Court’s Decision: The Court of Appeals for the Ninth Circuit affirmed. The court first agreed that there was at least a moderate degree of procedural unconscionability in this case because the circumstances under which Plaintiff signed the arbitration agreement involved significant oppression, as would support determination that the agreement was one of adhesion. Further, the court found the agreement involved some surprise because the cost-splitting provision was “very opaque” in that it did not indicate which state’s law controlled the question of whether the cost-splitting default rule was enforceable and made it difficult to figure out whether Plaintiff would have to pay half the arbitration costs or not.
The court also found that the agreement contained multiple substantively unconscionable terms. First, the agreement’s filing provision was substantively unconscionable because it imposed a one-year statute of limitations on only Plaintiff’s claims, which the court found significantly shortened the amount of time employees typically have to bring employment-related claims and deprived Plaintiff of both the continuing violation doctrine and the “discovery rule” (which indefinitely delays accrual of a cause of action until the plaintiff discovers or reasonably has cause to discover the facts constituting it). Second, the agreement’s provision that carved out preliminary injunctions only for Defendant was substantively unconscionable because it preserved only Defendant’s ability to seek preliminary injunctive relief in court. Applying California’s sliding scale test for unconscionability to the agreement, the court concluded the agreement was unconscionable and that the district court did not abuse its discretion in finding sufficient evidence that the agreement was permeated with unconscionability and declining to sever the unconscionable terms.
Practical Implications: It seems we are saying this all the time, but the message is always important: regularly review your employment arbitration agreements. This is an ever-changing area of law, and employers who administer arbitration agreements must stay on top of current developments.
Campbell v. Sunshine Behavioral Health LLC, No. G062886, 2024 WL 4283848 (Cal. Ct. App. Sept. 25, 2024)
Summary: Defendant who stipulated to classwide mediation and then backed out of mediation after allegedly for the first time discovering that Plaintiff had signed an arbitration agreement waived its right to compel arbitration.
Facts: In May 2022, Plaintiff Britnee Campbell filed a class-action complaint against her former employer, Defendant Sunshine Behavior Health LLC, for various alleged wage-and-hour violations. In August 2022, Defendant answered, and Plaintiff served discovery. In October 2022, the parties stipulated to participate in classwide mediation in April 2023 and proceed with informal discovery. In November 2022, Defendant allegedly for the first time discovered that Plaintiff had signed an arbitration agreement. Even so, Defendant represented to the court it intended to proceed with mediation. The court signed the mediation order in March 2023. The same day, Defendant told Plaintiff it would not mediate and would instead move to compel arbitration. In May 2023, Defendant filed its motion. The court denied the motion, finding Defendant had waived its right to arbitrate. Defendant appealed.
Court’s Decision: The California Court of Appeal affirmed. Relying on Quach v. California Commerce Club Inc., 16 Cal. 5th 562 (2024), in which the California Supreme Court clarified the standard for finding waiver, the court found that Defendant’s words and conduct showed that it chose not to exercise its right to compel arbitration and, thus, waived the right. First, the court credited the trial court’s “skepticism” of Defendant’s representation that it “discovered” the arbitration agreement for the first time in November 2022, noting that the admissible evidence showed instead that the arbitration agreement, which was held in Plaintiff’s personnel file, was readily available to Defendant before November. As the court explained, this evidence “can only support two possible conclusions — either an intentional and willful decision to withhold the arbitration agreement, or a complete lack of diligence amounting to bad faith in its review of [Plaintiff’s] personnel file.” Second, the court noted that Defendant’s participation in the “entire mediation debacle, followed by a court order violated by [Defendant],” indicated that Defendant had intentionally waived its right to arbitrate: “There is no rational explanation for stipulating to an order for classwide mediation, waiting until the court signed the order, and then (and only then), just before the mediation was scheduled, informing the other party that it intended to ignore the terms of the order.”
Practical Implications: Here is another frequent, but important, piece of advice: do not sit on an arbitration agreement. When a claim is filed, search quickly and thoroughly for any arbitration agreement that might exist. “Finding” an agreement down the line may end up waiving your right to arbitrate.
