The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “Act”), a federal law, is unique for its role in overriding the policy in favor of the enforcement of arbitration agreements.  The Act was legislated so that victims of sexual assault and harassment in the workplace would be entitled to their day in court, rather than behind the closed doors of a private arbitration, if that is what they prefer.  As such, where the Federal Arbitration Act (“FAA”) applies, so too does the Act.

Recently, however, the California Court of Appeal was posed the question of whether the Act should apply when only the California Arbitration Act (“CAA”) is referenced in an arbitration agreement, but not the FAA; a reversed scenario of that in Hernandez v. Sohnen Enterprises, Inc.  The distinction is significant because the CAA does not have a counterpart to the Act under the FAA.  For that reason, the employer, which moved to compel arbitration of an employee’s sexual harassment and wage and hour claims in Casey v. Superior Court of Contra Costa County, argued that the parties had only intended for California’s procedural rules to apply, and not the federal rules.  The court rejected the employer’s argument because it found that the evidence in the case showed a “sufficient indicia” of interstate commerce; a fact which compels that the agreement be governed by the FAA, even though the FAA was not explicitly referenced.  Put differently, the lack of a reference to the FAA did not permit the employer to “opt-out” of being governed by it.

Because the employer was sufficiently involved in interstate commerce, and thus falling within the purview of the FAA, the court took the next logical step in concluding that the Act applied, by virtue of the sexual harassment claims alleged.  To this end, it once again examined the interplay of federal preemption between the FAA and CAA.  This time, the court focused on the effect of preemption where it is impossible to comply with both state and federal requirements, or where state law stands as an obstacle to the accomplishment and execution of the full purpose and objectives of Congress.  The latter was plainly the issue in Casey; namely that the employer was trying to use the CAA to circumvent the application of the federal Act.  Accordingly, the Court of Appeal found that the arbitration agreement could not be enforced due to the Act’s overriding imperative that sexual harassment or assault cases not be subject to pre-dispute arbitration agreements.

It should be noted that the court’s opinion hinged on the finding that the employer was sufficiently engaged in interstate commerce.  Because the FAA is generally favorable to employers, it is often included and invoked in arbitration agreements.  However, this case may be an occasion for an employer to closely examine their effect on interstate commerce and whether solely invoking the CAA, warts and all, would be prudent going forward.

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