California Court Defines “Dispute” in EFASASHA

This article was first published on the Securities Arbitration Alert blog.

A California appellate court rules that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“Act” or “EFASASHA”) can be applied retroactively, where the employee’s claim was asserted after the law’s effective date.

As we have reported many times, President Biden on March 3, 2022 signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which expressly amended the Federal Arbitration Act (“FAA”) to make this class of predispute arbitration agreements (“PDAAs”) voidable at the option of the victim. The new law was codified as FAA Chapter 4 and consists of § 401 (definitions) and § 402 (no validity or enforceability).

Troublesome Language

The law was effective immediately for: “any dispute or claim that arises or accrues on or after the date of enactment of this Act.” From the start, we’ve been concerned about this aspect of the Act. For example, assuming the employment agreement is governed by a PDAA signed before March 3, 2022: 1) When exactly does a claim “accrue”? 2) What if a case is filed after March 3, 2022, but the acts giving rise to the claim happened before that date? What if the events are ongoing and straddle March 3, 2022? As we’ve said before, SCOTUS has ruled several times that arbitration agreements are separate contracts. Does a law allowing retroactive nullification of existing PDAAs invite legal challenges based on the Constitution’s Takings Clause?

A Case in Point

Some of these issues were front and center Kader v. Southern California Medical Center, Inc.No. B326830 (Calif. Ct. App. 2 (Jan. 29, 2024). What happened? “An employee signed an arbitration agreement with his employer in the regular course of his employment, without disclosing that he was being subjected to sexual harassment and assault…. Following the effective date of the Act, the employee sued the employer and other defendants for claims arising from the alleged sexual conduct. The defendants filed a motion to compel arbitration, which the trial court denied based on the Act. On appeal, the defendants contend the Act does not invalidate the arbitration agreement in this case because the alleged sexual conduct constituted a ‘dispute,’ which preexisted the parties’ arbitration agreement and the effective date of the Act.”

EFASASHA Can Be Applied Retroactively Here

The Court holds that, based on the facts of the case, EFASASHA can invalidate the PDAA because the “dispute” arose after the Act’s effective date:

“We conclude the date that a dispute has arisen for purposes of the Act depends on the unique facts of each case, but a dispute does not arise merely from the fact of injury. For a dispute to arise, a party must first assert a right, claim, or demand. There is no evidence of a disagreement or controversy in this case until after the date of the arbitration agreement and the effective date of the Act, when the employee filed charges with the Department of Fair Employment and Housing (DFEH) in May 2022. Therefore, the predispute arbitration agreement is invalid, and the order denying the motion to compel arbitration is affirmed.”

(ed: *We have covered similar cases in the past with mixed results. See Zuluaga v. Altice USANo. A-2265-21 (N.J. App. Div. 2022) (per curiam), in SAA 2022-47 (Dec. 15). AlsoBarnes v. Festival Fun Parks, LLC, No. 3:22-cv-00165 (W.D. Pa. Jun. 27, 2023) in SAA 2023-28 (Jul. 27). **The core question in our mind remains to be decided by SCOTUS: can EFASASHA be applied to retroactively invalidate an existing PDAA where the claim clearly arises after March 3, 2022?)

George Friedman

George H. Friedman is the publisher and Editor-in-Chief of the Securities Arbitration Alert, a weekly online publication covering the latest developments in financial services arbitration and mediation. He is also the principal of George H. Friedman Consulting, LLC, providing expert advice on arbitration and mediation in general and the FINRA…

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