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Court of Appeal:
Arbitration Exception for Harassment Covers All Claims
Opinion Says Statutory Carve-Out Exempts Entire Case if One Assertion of Sexual Misconduct
By Kimber Cooley, associate editor
All causes of action against a former employer may be statutorily exempted from arbitration where the complaint asserts at least one sexual harassment claim, Div. One of this district’s Court of Appeal held yesterday.
At issue is the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“EFAA”), codified at 9 U.S.C. §401 et seq. and effective March 3, 2022, which provides:
“Notwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual harassment dispute…no predispute arbitration agreement…shall be valid or enforceable with respect to a case which is filed under Federal…or State law and relates to…the sexual harassment dispute.”
Appealing an order denying a motion to compel arbitration was Miniso Depot CA Inc., the operator of retail stores selling toys, collectibles, cosmetics, and household items.
On Oct. 5, 2023, Yongtong Liu, a former employee of Miniso, filed a complaint against the company and her supervisor Lin Li, asserting wage and hour violations as well as claims under the Fair Employment and Housing Act (“FEHA”) for sexual harassment, sexual orientation harassment, and gender identity discrimination.
Comments on Appearance
Liu alleges that she “identifies as lesbian and dresses in a unisex non-gender specific style” and that Li and others commented on her appearance during company meetings, suggesting that no customers would buy products that looked like Liu and critiquing her for being “too skinny.”
The plaintiff also contends that the retailer failed to pay her overtime wages because she was improperly classified as an exempt employee relating to her role as a human resources specialist. She resigned in June 2023 after what she describes as “severe emotional distress, manifesting itself in migraines, anxiety, and depression” resulting from the conditions at work.
Miniso moved to compel arbitration on Jan. 31, pointing to a contract—signed as part of the on-boarding process—in which Liu purportedly agreed to arbitrate all employment-related claims. The company argued the EFAA only exempts sexual harassment claims and that her complaint alleged only “mere annoying, offensive, and stray remarks,” which could not state a viable claim under FEHA.
Los Angeles Superior Court Judge Bruce G. Iwasaki denied the motion to compel on March 19, saying “the [c]omplaint adequately states a claim for sexual harassment” and that the EFAA renders the arbitration agreement unenforceable “with respect to [the plaintiff’s] entire case.”
Justice Gregory Weingart authored the opinion affirming the denial. Presiding Justice Frances Rothschild and former-Presiding Justice J. Anthony Kline of the First District Court of Appeal (now retired), sitting by assignment, joined in the opinion.
Clear Language
Miniso argues that the EFAA’s language is clear and gives a plaintiff the option to invalidate an arbitration agreement only with respect to claims alleging sexual harassment. Turning to the statutory language, Weingart said “[w]e agree with Miniso that the language of the EFAA is clear but come to the opposite conclusion as to the meaning of the statutory language.”
The jurist said:
“[S]ection 402(a) provides, ‘at the election of the person alleging conduct constituting a sexual harassment dispute,’ here Liu, ‘no predispute 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.’….For purposes of resolving this appeal, the key word in section 402(a) is ‘case.’ The common meaning of the word, in the context of litigation, is an action or suit….Under the EFAA, if a plaintiff’s action ‘relates to…the sexual harassment dispute,’ then, at the plaintiff’s election, the arbitration agreement is not valid or enforceable ‘with respect to’ the entire case/action.”
He continued:
“Miniso’s interpretation is flawed because one cannot reasonably interpret section 402(a) as invalidating an arbitration agreement only with respect to certain claims within a case. The term Congress chose—’case’—is different from the term ‘claim.’….If Congress had intended the result Miniso seeks, it would have used the term ‘claim’ instead of ‘case’…or alternatively stated that the arbitration provision would be unenforceable ‘only to that portion of the case related to the sexual harassment dispute.’ Congress did not use such language….”
Weingart concluded that “under the EFAA, Liu may not be compelled to arbitrate any of her claims because the ‘case’ she filed under state law (her superior court lawsuit) ‘relates to…the sexual harassment dispute’ in that her complaint contains claims premised on conduct that is alleged to constitute sexual harassment under state law.”
Dispute Versus Case
The defendant points to the use of the term “sexual harassment dispute” as supporting its narrower interpretation of the statute. Weingart said:
“Miniso contends that only sexual harassment claims fit within the definition of ‘sexual harassment dispute,’ and that the EFAA thus can only apply to sexual harassment claims. This approach ignores other operative provisions of the EFAA.”
Unpersuaded, the jurist opined:
“Our interpretation of section 402(a)’s plain language does not yield an absurd result…. 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.”
Multiple Claims
Miniso points to two U.S. Supreme Court cases—the 1985 decision in Dean Witter Reynolds v. Byrd and the 2011 opinion in KPMG LLP v. Cocchi—as establishing that, under the Federal Arbitration Act, if only some causes of action in a dispute are arbitrable, the claims may be resolved in different forums regardless of the piecemeal litigation that may result.
Disagreeing that these cases resolve the matter, Weingart wrote:
“[T]his proposition is inapplicable here because, under the plain language of section 402(a), when a plaintiff ‘alleg[es] conduct constituting a sexual harassment dispute’ then the plaintiff can opt their entire ‘case’ out of arbitration. In other words, when the EFAA applies there are no arbitrable claims left.”
He noted that “[o]ne federal magistrate judge has published a contrary decision” but said that “[o]ur interpretation…accords with the only appellate decision published to date on this issue,” citing the September decision by Div. Three in Doe v. Second Street Corp. In Doe, the court found that pre-enactment behavior which is part of a continuing pattern is covered by the act and found that all of the plaintiffs’ claims were exempted.
The case is Liu v. Miniso Depot CA Inc., 2024 S.O.S. 3462.
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