Johannessen v. Juul Labs, Inc.

Background

Elizabeth Jay Johannessen sued JUUL Labs, Inc. and unnamed defendants under the California Fair Employment and Housing Act and the California Family Rights Act. She alleged gender discrimination, retaliation, harassment, and denial of accommodations for medical disabilities while working at JUUL. The complaint alleges that she worked as JUUL’s Senior Director of Compliance from March 12, 2018, until she was fired on May 22, 2020.

Johannessen filed the case in California state court. JUUL removed it to federal court on traditional diversity grounds, and Johannessen did not object to removal. JUUL moved to compel arbitration, and Johannessen opposed the motion.

The employment agreement submitted with the motion contained an arbitration clause covering claims, controversies, or legal disputes between the employee and the company arising from employment or termination. The agreement referred to the Federal Arbitration Act and, when consistent with that law, California arbitration rules. Because the clause did not assign questions about arbitrability or validity to an arbitrator, the court decided those questions.

Sealing and Public Access

The court stated that federal courts operate under a strong presumption that the public may access court proceedings and filings. Both sides had filed redacted documents, including versions of the employment agreement, without first requesting a sealing order or obtaining the court’s permission. The court warned that future filings that do not comply with the Local Rules and the judge’s standing orders would be summarily stricken. The order also directed a request that conforms to the district’s Local Rules and sealing practices by July 12, 2024.

Arbitration Agreement

The court rejected Johannessen’s challenge to the existence of an agreement. The parties did not dispute that she signed an offer letter containing the arbitration agreement on February 2, 2018. The court also rejected her argument that JUUL had not identified the applicable arbitration rules, finding that the agreement clearly referred to California Code of Civil Procedure section 1280 and following sections.

The court rejected Johannessen’s unconscionability arguments. Unconscionability is a contract doctrine that can make an agreement unenforceable when it was made through unfair procedures and contains unfair terms. The court said that offering arbitration on a take-it-or-leave-it basis, without more, was not enough to make the agreement unenforceable. It also noted that Johannessen was an experienced attorney and had negotiated compensation and benefits, including an annual salary of $235,000, a target bonus of 30%, and additional equity compensation and benefits.

The court further concluded that the arbitration agreement was not impermissibly one-sided. It required both employees and JUUL to arbitrate employment claims. Although the separate invention-assignment agreement allowed intellectual-property disputes to be litigated in court, JUUL offered reasons for treating those disputes differently, including that they may affect third-party rights and may arise after the employment relationship ends. The court found those reasons reasonable.

Effect of the Invention-Assignment Agreement

Johannessen argued that the invention-assignment agreement superseded or nullified the employment agreement’s arbitration clause. The court rejected that argument. It read the invention-assignment agreement’s integration provision as limited to that agreement’s subject matter. It likewise read the provision allowing court litigation as limited to disputes arising from or relating to the invention-assignment agreement. The court concluded that neither provision canceled the employment agreement or its arbitration clause.

Workplace Sexual Harassment Claims and the EFAA

Johannessen argued that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 made the arbitration agreement unenforceable for her claims. That law amended the Federal Arbitration Act to make certain pre-dispute arbitration agreements unenforceable for workplace sexual-assault and sexual-harassment disputes arising or accruing on or after the law’s enactment in March 2022.

The court distinguished sexual harassment from sex discrimination under the California Fair Employment and Housing Act. It concluded that the complaint did not plausibly allege sexual harassment for purposes of the federal law. The complaint did not allege unwelcome sexual advances, gender-based epithets, derogatory comments or slurs, or physical or visual harassment of a sexual nature. Instead, the alleged conduct involved adverse changes to Johannessen’s job duties after maternity leave, exclusion from some meetings, reassignment of a direct report, and a lactation room with inadequate privacy, including no lock on the door.

The court said those allegations could plausibly allege discrimination or gender bias at the pleading stage, but did not allege sexual harassment in workplace interpersonal relationships. Because there was no plausible sexual-harassment claim, the court ruled that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act did not prevent arbitration.

Disposition

The court ordered Johannessen’s claims to arbitration. The case was stayed pending further order, and the parties were directed to file joint status reports every 90 days beginning September 6, 2024. The order did not decide whether Johannessen ultimately would prevail on her employment claims.