EFASASHA Didn’t Invalidate Employment PDAA, But Unconscionability Did

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

Because the employee’s sexual harassment lawsuit predated the March 2022 effectiveness of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFASASHA”), the law could not be used to invalidate the predispute arbitration agreement (“PDAA”) in question, but the PDAA was unconscionable and thus unenforceable.

EFASASHA was signed into law on March 3, 2022. It expressly amended the Federal Arbitration Act (“FAA”) to make predispute arbitration agreements and class action waivers voidable at the option of the victim, and to make arbitrability an issue for the court, not arbitrators. The new law has been codified as FAA Chapter 4. It consists of § 401 (definitions) and § 402 (no validity or enforceability).

No Retroactive EFASASHA Application …

As to retroactivity, the statute says:

“This Act, and the amendments made by this Act, shall apply with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act.”

This language, a unanimous Court finds in Murrey v. Superior Court of Orange County, No. G061329 (Calif. Ct. App. 4 Jan. 30, 2023), means that EFASASHA cannot apply, because the claim and suit accrued well before March 2022:

“We regret that this new legislation does not apply retroactively to Casandra Murrey’s complaint filed in March 2021…. Murrey filed her case approximately one year before the Act was enacted. ‘During debate, Congress clarified that the Act is retroactive “as to contracts currently signed,” but not to ‘cases currently pending.’ In other words, the Act is only applicable to cases filed after its enactment.”

… But the PDAA is Unconscionable

The Court finds, however, that the arbitration clause is unconscionable and therefore unenforceable:

“The arbitration agreement in this case contained a high degree of procedural unconscionability. If these provisions had not been challenged in litigation, Murrey would have been at a significant disadvantage during arbitration. There were also multiple substantively unconscionable provisions, some of which would require us to substantially rewrite the agreement to remove the offending provisions, which we cannot do. When we consider the procedural and substantively unconscionable provisions together, they indicate a concerted effort to impose on an employee a forum with distinct advantages for the employer. As in Armendariz, we conclude ‘the arbitration agreement is permeated by an unlawful purpose.’ Accordingly, we vacate the court’s order granting the motion to compel arbitration” (citations omitted).

Not to Be Sticklers, but …

Although not central to the Opinion, we take issue with this language in the first paragraph (ed: bold highlighting added):

“In March 2022, President Joseph R. Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the Act) (9 U.S.C. §§ 401, 402), representing the first major amendment of the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) since its inception nearly 100 years ago. This legislation, having bipartisan support, voids predispute arbitration clauses in cases, such as the one before us now, involving sexual harassment allegations.”

• First, there have been major amendments to the FAA since its passage in 1925. For example, there was a significant amendment in 1988 (section 15— Inapplicability of Act of State Doctrine). Also, the additions of Chapters 2 and 3 were in our view “major.” And there were others….
• Second, the new law makes the clauses voidable at the option of the victim, notvoid ab initio. Says the law: “… at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, 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.”

(ed: *Despite our linguistic critique, we think the case was rightly decided. **Your editor worked in the AAA’s Legal Department in the early 1980s and was involved preparing an Amicus Brief for the appeal giving rise to the referenced 1988 FAA amendment effort. ***An Alert h/t to Editorial Board member Peter R. Boutin, Esq., of Keesal, Young & Logan, for alerting us to this decision.)

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…