Sexual Harassment Claims Not Subject to Arbitration in California

Many workers in California sign mandatory arbitration agreements with their employers. These agreements are contracts that mandate the parties to resolve legal disputes through arbitration instead of litigating them in court. Employers favor arbitration because the process occurs outside of court, and is private, and arbitrators sometimes tend to favor employers vs. employees. However, not all types of disputes can be forced into arbitration. In Liu v. Miniso Depot CA, Inc., Cal. Ct. App., Case No. B338090, the California Court of Appeal decided a case involving a mandatory arbitration clause and whether it applied to a sexual harassment claim when the case involved both sexual harassment, state wage law claims, and others.

Factual and Procedural Background

Yongtong “Jade” Liu was employed by Miniso Depot, a retail chain that sells household goods, toys, and collectibles. She was hired in April 2021 as an hourly human resources administrator. In January 2022, the company changed her designation from an hourly, statutory employee to an exempt, salaried employee.

Liu was a lesbian and dressed in unisex clothing. During her employment, she claimed that she and others in her presence were repeatedly subjected to sexual harassment. She provided examples such as the chief executive officer, Lin Li, commenting about her appearance and stating that if products looked like her, no one would purchase them, telling her in meetings she needed to eat more to be less skinny and develop curves, and regularly comparing female workers to toys. Liu claimed that male managers called female employees “little girls” and homosexuals “creepy”. She also said that males at her workplace called her “brother Jade.”

Liu further claimed that Li asked her to engage in illegal practices, including hiring only young Korean employees, falsifying immigration documents, and paying female employees less than males in the same positions. After she complained about the illegal practices in the workplace to Li, she claimed she was subjected to ongoing harassment. Liu claimed the workplace conditions became so intolerable she was forced to resign in June 2023 because of the hostile environment.

She filed a lawsuit against Miniso Depot and Li, alleging multiple causes of action. Her causes of action included constructive discharge, whistleblower retaliationsexual harassment, sexual discrimination, sexual orientation discrimination, wage and hour violations, and intentional infliction of emotional distress.

On Jan. 31, 2024, Miniso Depot filed a motion to compel arbitration on all of Liu’s claims under the Federal Arbitration Act (FAA). It submitted a copy of the arbitration agreement Liu signed at the time she was hired to support its arbitration demand. The agreement stated that all disputes would be resolved through arbitration by the Judicial Arbitration and Mediation Services/Endispute, Inc. and included a choice of law provision that stated the FAA would be used instead of state law when determining the agreement’s enforceability and validity.

Miniso argued that all of Liu’s claims should be arbitrated because they consisted solely of state law claims. It also argued that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA) didn’t apply because Liu’s sexual harassment claims failed to state an act of sexual harassment.

Liu opposed the motion to compel arbitration and argued the EFAA allowed her to opt out of arbitration because of her sexual harassment complaints. She argued the EFAA did not require her to state specific facts to support the claim of harassment to invoke the law’s protection.

Miniso filed a reply in which it repeated its arguments about Liu’s sexual harassment claims. It also argued that even if the court found the sexual harassment counts could be litigated and weren’t subject to forced arbitration, the court should still order the remaining claims to be resolved in arbitration.

The trial court issued an order on March 19, 2024, denying Miniso’s motion. The court noted that there wasn’t any controlling case law that mandated the pleading meet a standard of sufficiency. It also said that Liu’s sexual harassment complaint met the basic requirements to support a sexual harassment claim. The court then relied on two federal decisions to deny Miniso’s claim that the other allegations should be arbitrated. Miniso timely filed an appeal.

Issue: Whether the EFAA requires all claims to be litigated when a complaint includes sexual harassment allegations plus other, non-harassment-related claims?

On appeal, Miniso withdrew its argument that Liu failed to meet a sufficient standard for a sexual harassment claim and conceded her sexual harassment claim could be litigated in court. However, it argued that the other claims could still be separated and should be arbitrated subject to the mandatory arbitration agreement and the FAA.

Rule: The EFAA prohibits the enforcement of mandatory arbitration clauses against sexual harassment claims.

While Miniso conceded that Liu’s sexual harassment counts could be litigated instead of being forced into arbitration, it argued that the EFAA only prohibited those counts from being forced into arbitration and did not affect the other state law claims. Liu argued that the EFAA prohibited forcing a lawsuit into mandatory arbitration at all when it included at least one sexual harassment claim.

Analysis

The Court of Appeal first analyzed the FAA and EFAA. Since both parties agreed the FAA governed the case, the Court of Appeal considered it under the FAA’s provisions. The FAA states that an arbitration agreement is irrevocable and enforceable as long as other legal or equitable grounds don’t exist that would prevent the removal of a lawsuit from court and into arbitration.

The EFAA was added to the FAA in 2021 to address sexual harassment claims. It states that irrespective of other provisions of the law, an arbitration agreement will be considered unenforceable and invalid for a case that relates to a sexual harassment dispute.

Miniso argued that the EFAA only gave plaintiffs like Liu the ability to prevent the forced arbitration of sexual harassment claims but not other claims unrelated to harassment. However, the EFAA’s statutory language expressly states that no case involving a state law sexual harassment complaint can be forced into mandatory arbitration and does not include language allowing courts to separate other claims from the same case and force them into arbitration.

The Court of Appeal pointed out the flaws in Miniso’s arguments. It noted that the word case is commonly used in legal terms to refer to a lawsuit instead of a single cause of action included in one. It stated that if Congress had agreed with Miniso’s reading, it would have used the word “claim” instead of “case” to denote that individual claims could be separable for purposes of arbitration.

To avoid the issues surrounding the use of the word “case”, Miniso also pointed to another section that referred to a sexual harassment dispute. It argued that only claims involving sexual harassment fit the definition of a sexual harassment dispute, allowing courts to force unrelated claims into arbitration while proceeding with the sexual harassment claims alone.

The court noted that this reading was absurd. It pointed out that allowing some claims to be separated and forced into arbitration while allowing sexual harassment claims to be litigated separately would go against the FAA’s clear call for increased judicial efficiency. Finally, the court noted that it had previously found in Doe v. Second Street Corp., Cal. Ct. App. Case No. B330281 that the EFAA’s language referred to an entire case rather than single sexual harassment claims.

Conclusion

The Court of Appeal affirmed the trial court’s decision. It returned the case and ordered it to continue to further court proceedings. Liu was granted her costs on appeal.

Consult a Knowledgeable Los Angeles Employment Lawyer

If you are the victim of workplace sexual harassment and have other state law claims against your employer, you have the right to pursue litigation against your employer in court despite any arbitration agreement you might have signed. To learn more about your rights and how to protect them, contact the experienced Los Angeles employment lawyers at the law firm of Steven M. Sweat, APC for a free consultation by calling 866.966.5240.