EFAA Pre-empts Choice-of-Law Clause in Arbitration Agreement

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) trumps a choice of law provision in an employment agreement, a California appellate panel recently held.

Kristin Casey began working as a real estate agent for D.R. Horton, a national homebuilding company, in 2015. In 2017, she signed a new employment contract, which included an arbitration clause.

The clause provided that, if the parties were unable to resolve a dispute through negotiation or mediation, they agreed to binding arbitration administered by JAMS. A separate clause, titled “Governing Law” provided that “[t]he construction and interpretation of this Agreement shall at all times and in all respects be governed by the law of the State of California.”

Casey was a successful agent and became one of the company’s top performers. In late 2022, she was assigned to work with Kris Hansen at a remote developing site. He made a series of unwanted sexual remarks, and Casey felt unsafe and became physically nauseous when she was around him.

She ultimately went on medical leave and resigned in 2023. Casey then filed suit against D.R. Horton and Hansen, asserting sexual harassment, discrimination, retaliation and negligent hiring and retention, among other claims.

D.R. Horton filed a motion to compel arbitration, which Casey opposed. She argued that the EFAA applied and that she could not be forced to arbitrate her case.

The trial court disagreed, granting the motion in favor of the defendants. Casey appealed.

While the Federal Arbitration Act (FAA) and the California corollary generally embody a liberal policy in favor of the enforcement of arbitration agreements, the EFAA provides that a person alleging conduct constituting a sexual harassment dispute may elect that no predispute arbitration agreement shall be valid or enforceable.

Initially, the court considered whether the evidence showed a sufficient indicia of interstate commerce for the EFAA to apply to the parties’ transaction. As part of the FAA, the EFAA was enacted under Congress’s authority under the commerce clause and extends to contracts that involve commerce.

“The undisputed evidence here amply demonstrates a nexus to interstate commerce for the EFAA to apply,” the court wrote. Casey attested to her personal knowledge that D.R. Horton conducts business in 33 states and employs multiple trades based out of various states; as a regular part of her work, she spoke to potential and actual buyers by communicating both by phone and email with out-of-state purchasers.

Having determined that the FAA and thus the EFAA applied to the parties’ transaction, the court found that D.R. Horton’s effort to compel arbitration was “plainly” pre-empted by the federal law.

“Conflict preemption is present here because the EFAA states a blanket rule of unenforceability of arbitration agreements in cases related to a sexual harassment dispute while the CAA provides for the general enforceability of arbitration agreements in all cases – including those related to a sexual harassment dispute,” the court said. “The EFAA’s purpose is plainly obstructed by an attempt to use state law to force a person who is alleging sexual harassment to arbitrate their dispute.”

The EFAA has no exceptions to its rule of unenforceability, the court added.

While D.R. Horton maintained that pre-emption did not apply because the parties’ agreement specified that its construction and interpretation was to be governed by state law, “this point, even if true, is immaterial because the FAA (including the EFAA) exists and plainly applies.”

The parties’ selection of California law meant that they chose the state’s arbitration-enforcement procedures, along with the state’s substantive law for most of their disputes, the court said.

“But D.R. Horton’s attempt to compel arbitration of Casey’s case – which directly relates to a sexual harassment dispute – by relying on the choice-of-law provision would directly contravene Congress’s purpose and objectives in enacting the EFAA,” the court wrote. “It is therefore preempted.”

D.R. Horton also told the court that even if the EFAA applied, it did not apply “retroactively” to Casey’s 2017 employment agreement.

“The company is mistaken,” the court explained, as by its terms, the EFAA applies “with respect to any dispute or claim that arises or accrues on or after the date of enactment” on March 3, 2022 and applies even where a plaintiff alleges a course of sexually harassing conduct that occurs both before and after the statute’s enactment.

Casey’s complaint alleged that the sexual harassment she suffered began in December 2022—months after the effective date of the EFAA.

The court also rejected D.R. Horton’s attempt to have the order compelling arbitration affirmed for Casey’s non-sexual harassment claims.

“Consistent with other state appellate courts that have considered the issue, we hold that where a plaintiff’s lawsuit contains at least one claim that fits within the scope of the EFAA, ‘the arbitration agreement is unenforceable as to all claims asserted in the lawsuit,’” the court wrote. “The EFAA provides that it applies to ‘a case’ – as opposed to a claim – that a plaintiff brings alleging sexual harassment, meaning that the EFAA applies to an entire case.”

The court directed the trial court to vacate its order granting the motion to compel arbitration.

To read the opinion in Casey v. Superior Court, click .

Why it matters: The California appellate panel was clear: the EFAA pre-empts attempts under state law to compel arbitration of cases relating to a sexual harassment dispute, and parties cannot contract around the law by way of a choice-of-law provision.