Recent Ruling Clarifies Arbitration Agreements Covering Sexual-Harassment Claims

The California Court of Appeal recently issued a ruling in Kader v. Southern California Medical Center, Inc. that clarified the scope of arbitration agreements addressing sexual-harassment claims.

First, let’s review the dates—because the timing matters in this new case and for employers with arbitration agreements. The employee, Kader, and the employer, Southern California Medical Center, Inc., initially signed an agreement to arbitrate their claims in May 2018. In July and November, Kader’s boss allegedly sexually harassed and assaulted him. It happened again in April 2019, along with a threat of firing if he told anyone. Two months later, Kader signed a new arbitration agreement covering employment disputes—it stated the Federal Arbitration Act would govern.

Kader alleged he suffered eight more acts of sexual harassment and assault from September 2019 to February 2022. And, he claimed, the CEO retaliated against him in July 2021.

Then Congress enacted the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act” (the “Act”.) Under the Act, no pre-dispute arbitration agreement is enforceable with respect to a sexual-assault or harassment dispute. The Act became effective on March 3, 2022. But Kader claimed he was harassed again on March 16, 2022, filing a complaint with California’s Civil Rights Department (né: DFEH) two months later, in May 2022. It is unclear if Kader ever complained to his employer about the assault or harassment.

Kader then sued for sexual harassment, discrimination (race, national origin, and sex), failure to prevent discrimination and harassment, retaliation, IIED, negligence, sexual battery, and defamation. The employer moved to enforce the arbitration agreement.

Following some back-and-forth between the Court of Appeal and the Los Angeles Superior Court, the Court of Appeal recently affirmed the trial court’s denial of the motion to compel, even though (1) the Act was not in effect during most of the incidents and (2) the employee signed a new arbitration agreement after the initial alleged harassment and assault incidents.

The Court of Appeal barred enforcement of the arbitration agreement for two important reasons employers should note. First, the Court ruled that the “dispute” began not in July 2018 when Kader’s sexual harassment and assaults began, but in May 2022 when he filed his DFEH claim. The Act covers a “dispute or claim” arising after enactment—after March 3, 2022.  But the Kader Court makes clear, a “dispute” and a “claim” are necessarily different things. Essentially, here, the “claim” began when Kader was harassed, but the “dispute” began when he brought a formal claim to the DFEH. The Court explained a “dispute” arises when “one party asserts a right, claim, or demand, and the other side expresses disagreement or takes an adversarial posture”—here, that was a DFEH claim. Importantly, the Court suggested that a dispute could have existed prior to filing the DFEH claim, but there was no evidence of one. Thus, by filing with the DFEH after the Act was enacted—for actions occurring before enactment—Kader could have his arbitration agreement invalidated. This, even though the trial court had found all but one of the actions occurred before the Act’s enactment.

Second, his employer also argued that Kader signed the arbitration agreement after the harassment and assault—something the Act allows. The employer believed that meant the matter should have been arbitrated. But the Court again relied on when the “dispute” arose, not when the alleged harassment happened. Kader alleged he was harassed before he signed the June 2019 arbitration agreement, but it continued afterwards. But what matters for invalidating the agreement is when the “dispute” started. And, again, that was the DFEH claim date—May 2022, two years after he signed the agreement to arbitrate.  The “dispute” arose after the Act’s enactment and after the parties signed the arbitration agreement, even though the “claim” happened before either. The “dispute” date controls as to both issues.

So, as the federal “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act” continues to impact employment-arbitration agreements, parties will need to focus on the precise timing of events: when did the formal dispute begin, when did the parties agree to arbitrate employment claims, and when did the claims occur? It might have seemed like sexual harassment or sexual assault actions occurring before the Act went into effect could still be arbitrable. Similarly, it might seem that such actions happening before the employee signed an agreement to arbitrate would also go to arbitration. But Kader v. Southern California Medical Center, Inc. has just ruled to the contrary. Did the parties’ formal dispute begin after March 3, 2022? Did they sign an arbitration agreement before the formal dispute began? Both answers will matter in moving to enforce arbitration agreements—more so than when the employee suffered the harassment or assault.

Best,

Keith W. Carlson and Nima A. Jalali