“Dispute Arises” Under the EFAA Means Employer–Employee Opposition, Not Injury or EEOC Filing: Third Circuit’s Precedential Clarification in Cornelius v. CVS

“Dispute Arises” Under the EFAA Means Employer–Employee Opposition, Not Injury or EEOC Filing: Third Circuit’s Precedential Clarification in Cornelius v. CVS

Introduction

In a precedential opinion, the U.S. Court of Appeals for the Third Circuit clarified a pivotal timing question under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA): when does a “dispute” “arise” for purposes of the Act’s effective-date clause? The court held that, for EFAA timing, a dispute “arises” when an employee asserts a position (internally or externally) and the employer expressly or constructively opposes it—not when the underlying conduct occurs (injury), and not only when an EEOC charge or lawsuit is filed. Applying that rule, the court concluded that the plaintiff’s dispute arose before March 3, 2022 (the EFAA’s effective date), so her claims were not shielded from arbitration.

The panel also vacated and remanded on a second, process-focused issue. Because the district court considered materials outside the complaint in compelling arbitration, it effectively proceeded under Rule 56 but did not assess whether limited discovery into arbitrability was warranted under Guidotti and the Third Circuit’s later clarification in Young. That failure was an abuse of discretion. On remand, the district court must decide whether to allow targeted discovery into whether a valid agreement to arbitrate was formed under New Jersey law and, if arbitration is compelled, stay rather than dismiss the action pursuant to Supreme Court authority.

Parties and Posture

  • Appellant: Michele A. Cornelius, a former CVS store manager with a 40-year tenure.
  • Appellees: CVS Pharmacy Inc., New Jersey CVS Pharmacy, L.L.C., and Shardul Patel (supervisor).
  • Claims: Hostile work environment and related allegations under Title VII based on sex-based mistreatment.
  • Procedural background: CVS moved to compel arbitration based on its 2014 arbitration policy disseminated via a training module. The district court granted the motion, held the EFAA inapplicable, and dismissed the case. Cornelius appealed.

Summary of the Opinion

The Third Circuit affirmed in part and vacated in part:

  • EFAA applicability: Affirmed, but on different grounds than the district court. The court held that Cornelius’s “dispute” with CVS arose before March 3, 2022—the EFAA’s effective date—because she repeatedly lodged internal complaints in 2019–2020 and CVS opposed them. Thus, the EFAA does not apply.
  • Arbitration agreement formation and procedure: Vacated and remanded. By relying on materials outside the complaint, the district court functionally applied Rule 56 but failed to consider whether limited discovery into arbitrability was warranted under Guidotti and Young. On remand, the district court must determine whether discovery is necessary and then adjudicate formation and waiver-of-rights issues under New Jersey law (e.g., Garfinkel and Skuse).
  • Disposition if arbitration compelled: If the court compels arbitration on remand, it must stay (not dismiss) the action under Smith v. Spizzirri because the defendants sought dismissal or, in the alternative, a stay.

Analysis

Precedents and Authorities Cited

  • Federal Arbitration Act (FAA) baseline: Buckeye Check Cashing, Inc. v. Cardegna, affirming arbitration agreements are valid, irrevocable, and enforceable like other contracts (9 U.S.C. § 2).
  • EFAA structure and court’s role: 9 U.S.C. § 402(b) assigns the court—not the arbitrator—to decide whether the EFAA applies.
  • Effective-date clause: The EFAA applies to any “dispute or claim that arises or accrues” on or after March 3, 2022 (contained in the enacted statutory note to Pub. L. 117-90, recognized as binding law). The court treated “arises” and “accrues” as distinct temporal triggers.
  • Textual approach to “dispute”: The court consulted Black’s Law Dictionary and the OED to ground the ordinary meaning of “dispute” as involving opposition or disagreement, not just injury.
  • Alignment with other circuits: Famuyide v. Chipotle Mexican Grill, Inc. (8th Cir. 2024) rejected equating “dispute arises” with the occurrence of injury; the Third Circuit agreed with that core insight while crafting its own intermediate rule.
  • Discovery framework on arbitrability: Guidotti v. Legal Helpers Debt Resolution, L.L.C. (3d Cir. 2013) and Young v. Experian Information Solutions, Inc. (3d Cir. 2024). Young clarifies that discovery into arbitrability is encouraged when warranted but is not categorical; it hinges on whether a genuine factual dispute exists regarding the existence or scope of the arbitration agreement.
  • Formation and waiver under New Jersey law: Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A. (N.J. 2001) and Skuse v. Pfizer, Inc. (N.J. 2020) require clear and unmistakable notice when a contract waives trial rights. The mode of presentation (e.g., embedded in a “training” module) can bear on clarity.
  • Delegation clauses and formation: Even where an agreement delegates enforceability issues to the arbitrator, courts must decide formation questions (Young).
  • Stay vs. dismissal after compelling arbitration: Smith v. Spizzirri (U.S. 2024) requires a stay when a party so requests; dismissal is not the remedy under FAA § 3.

Legal Reasoning

1) The EFAA’s timing rule and the meaning of “dispute arises”

The EFAA applies only to “any dispute or claim that arises or accrues” on or after March 3, 2022. Cornelius conceded her claim accrued before that date (her termination was November 4, 2021). The appeal therefore turned on when her “dispute” arose. The Third Circuit:

  • Rejected CVS’s position that a dispute arises when the underlying conduct occurs, because “injury” lacks the essential element of opposition inherent in “dispute.”
  • Rejected amicus Public Justice’s and Cornelius’s position that a “dispute” arises only when an external complaint (EEOC charge or lawsuit) is filed, as too narrow and untethered to the ordinary meaning of “dispute.”
  • Adopted an intermediate, text-driven rule: a dispute “arises” when the employee asserts a right, claim, or demand—in writing or otherwise, internally or externally—and the employer expressly or constructively disagrees. This aligns with dictionary definitions and preserves the ordinary understanding of “arise” as the point at which an opposition crystallizes.

Applying that rule, the court found that Cornelius’s dispute arose at least by 2019–2020, when she submitted multiple internal complaints and CVS (allegedly) sided with her supervisor and denied relief. Because this predates March 3, 2022, the EFAA did not apply, and the arbitration agreement (if valid) remained enforceable.

2) Arbitration formation and the need for discovery under Guidotti/Young

On the separate question whether Cornelius agreed to arbitrate, the district court considered CVS’s training module, policy guide, and policy documents—materials outside the complaint. That moved the analysis from a Rule 12(b)(6) posture into a Rule 56-like framework under Guidotti, which potentially triggers limited discovery into arbitrability if material facts are disputed.

Young clarifies that discovery is not automatic; it is warranted when a genuine dispute of material fact exists regarding the existence or scope of the arbitration agreement. Here, Cornelius identified numerous issues that could be material under New Jersey’s strict waiver-of-rights jurisprudence, including:

  • Which documents actually comprise the arbitration agreement (policy, guide, training slides) and whether essential terms (opt-out, right to counsel, waiver of trial) are dispersed across different artifacts rather than presented clearly together.
  • Whether presenting the agreement as a “training” could reasonably mislead employees into thinking it was routine rather than a waiver of court rights (Skuse cautions against such confusion).
  • Whether the policy’s phrasing sufficiently communicated that employees would forfeit their right to a judicial forum, and the relevance of the policy’s silence on certain rights that appeared only in ancillary materials.

The panel held that the district court abused its discretion by not assessing whether these asserted disputes warranted limited discovery under Rule 56(d). The court therefore vacated and remanded for the district court to:

  • Determine whether limited discovery into arbitrability is warranted;
  • Resolve, after appropriate procedure, whether there was a valid formation and clear, unmistakable waiver of trial rights under New Jersey law; and
  • If arbitration is compelled, stay rather than dismiss the action under Spizzirri.

Impact

A. EFAA timing across the Third Circuit

  • Clarifies the EFAA’s effective-date boundary: In the Third Circuit, a “dispute” can arise through internal friction, not only through external filings. That means internal complaints that predate March 3, 2022—and an employer’s opposition—can place claims outside the EFAA’s protection even if the EEOC charge or lawsuit is filed later.
  • Practical effect: Employees who engaged management about harassment before March 3, 2022, may find their cases outside EFAA coverage; employers will likely scrutinize internal complaint timelines to argue disputes arose pre-Act.
  • Inter-circuit alignment: The decision resonates with the Eighth Circuit’s skepticism toward equating “dispute” with “injury” and adds a workable trigger based on employer–employee opposition.

B. Arbitrability procedure and formation law

  • Guidotti/Young protocol: District courts in the Third Circuit must be attentive to posture. If they rely on materials beyond the complaint to compel arbitration, they should assess whether limited discovery is warranted and apply Rule 56 standards accordingly.
  • Formation and waiver under state law: The opinion underscores that formation—and clear, unmistakable waiver of judicial rights—are quintessentially state-law contract questions for the court, notwithstanding delegation clauses.
  • Employer practices: Employers relying on training modules to roll out arbitration policies should ensure that all essential terms (waiver of court rights, opt-out mechanics, right to counsel, fee/sharing rules, scope) are conveyed together, unambiguously, and in a manner that cannot be misconstrued as routine training. The clarity and accessibility of post-training documentation may matter.

Complex Concepts Simplified

  • EFAA (Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act): A 2022 amendment limiting enforcement of pre-dispute arbitration agreements in sexual assault and sexual harassment cases, at the complainant’s election. It applies only to disputes or claims that arise or accrue on or after March 3, 2022.
  • “Dispute arises” vs. “claim accrues”: “Accrues” refers to when a legal claim exists (often at injury or termination). “Arises” here means when the employee and employer are actually in opposition—after the employee asserts a position and the employer disagrees.
  • Statutory notes: Language enacted by Congress but printed as a note rather than within the main codified section of the U.S. Code. They carry legal force.
  • Arbitrability discovery: Limited, targeted discovery into whether an arbitration agreement exists or covers the dispute, used when courts consider matters beyond the complaint and there are factual disputes about formation or scope.
  • Delegation clause: A term in an arbitration agreement assigning threshold questions (e.g., enforceability, scope) to the arbitrator. Courts must still decide whether any arbitration agreement was formed at all.
  • Rule 12(b)(6) vs. Rule 56: Rule 12(b)(6) is a motion to dismiss on the pleadings. When a court considers evidence outside the complaint to compel arbitration, it effectively moves into a Rule 56 summary judgment framework, which can require allowing discovery if facts are genuinely disputed.
  • Rule 56(d) affidavit/request: A procedural step allowing a non-movant to explain why it needs discovery to oppose summary judgment. Courts generally grant such requests when relevant facts are in the moving party’s control.
  • New Jersey “clear and unmistakable” waiver rule: Arbitration agreements waiving the right to a judicial forum must plainly convey that right is being relinquished; placement, tone, and clarity matter.

Key Precedents in Context

  • Olivieri v. Stifel, Nicolaus & Co., Inc. (2d Cir. 2024): Describes the EFAA as limiting the FAA’s mandate by invalidating arbitration agreements at the complainant’s election in sexual assault/harassment cases; recognizes statutory notes as binding.
  • Famuyide v. Chipotle Mexican Grill, Inc. (8th Cir. 2024): Rejects “dispute arises = injury” for EFAA timing; emphasizes assertion of a claim and opposition.
  • Guidotti v. Legal Helpers Debt Resolution, L.L.C. (3d Cir. 2013) and Young v. Experian Information Solutions, Inc. (3d Cir. 2024): Establish the procedural roadmap for motions to compel arbitration, clarifying when discovery is warranted and who decides formation questions.
  • Garfinkel (N.J. 2001) and Skuse (N.J. 2020): Demand clear, unmistakable waiver of trial rights; warn against conveying arbitration terms in ways that could be mistaken for routine training.
  • Smith v. Spizzirri (U.S. 2024): When arbitration is compelled and a party requests it, a stay is mandatory under FAA § 3; dismissal is not the remedy.

What Remains Open on Remand

  • Formation: Which documents constitute the actual arbitration agreement (policy, policy guide, training slides), and whether the presentation and content satisfy New Jersey’s clarity standard for waiver of court rights.
  • Discovery: Whether limited discovery is needed to resolve disputed facts bearing on formation, notice, opt-out availability, and access to documents post-training.
  • Unconscionability and other defenses: The Third Circuit did not reach unconscionability; the district court may address it if necessary after resolving formation and clarity.
  • Stay vs. dismissal: If arbitration is compelled, the action must be stayed consistent with Spizzirri, given defendants’ request to dismiss or stay.

Practical Takeaways

  • Timing under the EFAA is nuanced: Document internal complaint timelines and employer responses. Internal grievance activity and employer opposition before March 3, 2022 can defeat EFAA coverage even if the case or EEOC charge was filed later.
  • Drafting and rollout matter: Employers should present arbitration terms in a standalone, unmistakably contractual format. Avoid burying critical waivers in training modules; consolidate key terms (forum waiver, opt-out, rights to counsel, procedures) in a single, accessible document with clear acknowledgments.
  • Litigation posture: If courts rely on extrinsic materials to decide arbitrability, be prepared to request or oppose targeted discovery under Rule 56(d) and Young. Identify the specific factual disputes and why discovery is necessary or unnecessary.
  • Formation is for the court: Even with a delegation clause, expect courts to decide formation issues (e.g., mutual assent, clear waiver) before sending anything to an arbitrator.

Conclusion

Cornelius v. CVS delivers a precedential, text-centered clarification of the EFAA’s timing rule in the Third Circuit: a “dispute” “arises” when the employee asserts a position and the employer opposes it, not when injury occurs and not solely upon filing an EEOC charge or complaint. This intermediate approach both honors the statutory language and aligns with the ordinary meaning of “dispute,” while offering a practical trigger that courts can apply across varied workplace processes.

Procedurally, the decision underscores that when courts consider extrinsic materials on motions to compel arbitration, they must follow the Guidotti/Young framework—assessing whether limited discovery into arbitrability is warranted, and then resolving formation and waiver-of-rights questions under applicable state law. On remand, the district court will decide whether CVS’s training-based rollout and accompanying documents created a clear and unmistakable arbitration agreement under New Jersey law. And if arbitration is compelled, a stay—not dismissal—is required under the FAA.

The opinion will shape EFAA timing arguments and arbitrability practices throughout the Third Circuit, prompting both litigants and employers to pay careful attention to internal complaint dynamics before March 3, 2022 and to the clarity and presentation of arbitration terms going forward.

Case Details

Year: 2025
Court: Court of Appeals for the Third Circuit

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