In 2022, Congress enacted the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act” (the “Act”) which provides that, at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, “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.”  (9 U.S.C. § 402).       

The California Court of Appeals recently addressed a fundamental question under the Act in Kader v. Southern California Medical Center, Inc.: when does a “dispute” arise?  Because the Act does not define a “dispute” or state when a dispute has “arisen” the court first looked to general and legal dictionaries for the term’s ordinary meaning.  Using these as a guide, the court concluded that, “the date that a dispute has arisen for purposes of the Act is a fact-specific inquiry in each case, but a dispute does not arise solely from the alleged sexual conduct.  A dispute arises when one party asserts a right, claim, or demand, and the other side expresses disagreement or takes an adversarial posture.” (Emphasis added).  According to the court, “until there is a conflict or disagreement, there is nothing to resolve in litigation.”

In reaching this conclusion, the court distinguished the term “dispute” from that of a “claim”.  In general, a claim arises for the first time when the plaintiff suffers injury. A dispute, on the other hand, requires a disagreement or controversy.  Relying on this distinction, the court rejected the employer’s argument that a “dispute” arose before the employee signed an otherwise enforceable arbitration agreement.  This is because the employer in Kader did not present evidence that it denied that the harassment occurred before the arbitration agreement was signed.  Without a denial by the employer, there could be no dispute.  Indeed, the court found that actions such as the employer threatening to fire the employee if he told anyone of the harassment amounted to a concession of the claim, rather than a dispute of it.

This ruling raises several questions for California employers. First, should employers immediately “dispute” claims of sexual harassment when an employee makes them known?  What does this definition of “dispute” mean in connection with an employer’s duty to investigate claims when they are raised by an employee?  If the employer does dispute that sexual harassment occurred, does the employer then issue a new arbitration agreement to the employee, in the hope of having the claims heard in arbitration?

Regardless of how an employer answers these questions, pursuant to California law, employers remain obligated to immediately investigate any claims of sexual harassment as soon as they learn of them and, when applicable, discipline any offending parties.  As the employer in Kader learned, actual or perceived retaliatory actions, such as threatening to fire the employee for disclosing the harassment, will be presumptively held against the company.

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