Episode 146: Important Updates on Arbitration Law

Welcome to the Workplace, a podcast by Cal Chamber. I'm Matthew Roberts, the Labor Law helpline Manager and Employment Law Council with the California Chamber of Commerce. Today we get the rare opportunity to discuss a recent major federal employment law development. I know it's rare we get to discuss employment law bills or any bills really coming out of Congress. And even better, it's not Covid related, but. But instead, it actually harkens back to the MeToo movement exposing sexual harassment in the workplace and how arbitration agreements are now affected by the continuing momentum to keep that stuff out in the open. So this federal law comes at an interesting time for arbitration agreements here in California, as the California Legislature has a well established hostility towards arbitration agreements in the employment context. As it is to help navigate the choppy waters of arbitration agreements, we are welcoming back Cal Chambers, Vice President of Labor and Employment, focusing on content training and advice, Bianca Soft. And also welcoming back Cal Chambers, legal editor and employment law subject matter expert, James Ward. Thanks for joining me today, Bianca and.

James, thanks for having us, Matt.

It's a pleasure.

So, before we get into what the federal government just did with arbitration agreements, we should set the stage of where we are today. In a nutshell, arbitration agreements as they're used in the employment relationship generally means the employee is waiving their right to pursue any lawsuits in court, and instead they would have any claims that they had against their employer or former employer heard by a single arbitrator. Often, employers require applicants and employees to enter into these agreements as a mandatory condition of employment for the employer, meaning the employee has no choice. You take the job, you sign this agreement. If you don't sign this agreement, there's no job for you. The California Legislature has made multiple attempts to ban this practice, and its most recent attempt through AB51 or Assembly Bill 51, is actually currently being litigated. So let's get started with where we are here in California. Bianca, tell us, what does AB51 do?

All right, so in a nutshell, AB51 barred mandatory employment arbitration in California. Specifically, it prohibits employers from requiring an arbitration agreement as a condition of employment for applicants or for continued employment for the employees. In other words, the arbitration has to be voluntary. Now, it also established penalties and the possibility of criminal punishment, which was a concern in the challenge. The arbitration ban was set to take effect on January 1, 2020, and it applies to claims made under the Labor Code or under the Fair Employment and Housing Act. It doesn't, however, apply to any agreement that was entered into before January 1, 2020.

Yeah, so I wasn't joking. A lot of hostility towards arbitration agreements there from the California legislature. Basically no more mandatory agreements. So being as that is and that we like to give employers maximum flexibility in how they run their businesses, a coalition of business groups led by Cal Chamber filed suit against this bill. What's our argument and really what's the status of the bill as we sit here today?

Bianca, from the beginning really has been that AB51 is preempted by or conflicts with federal law, specifically the Federal Arbitration act or the ffa. Now, a little bit of background on the ffa. I'll try not to geek out too much with you all, but just to kind of again set the stage around this. So the FFA has been around for almost a century, took effect in 1926, and really it established the federal framework for enforcement of arbitration agreements. It was largely designed to prevent state courts from refusing to enforce arbitration agreements. And over the years the U.S. supreme Court has had that well established that the FFA preempts any state law that prohibits or limits arbitration.

Where does that take us with AB51? Back to the AB51 challenge. The trial court agreed with us in terms of this preemption argument that the ffa, excuse me, that the FAA does rule the land, so to speak, in this area, and granted a preliminary injunction which basically put the law on hold. Now that decision was appealed to the 9th Circuit and in a panel decision composed of three justices there, in a 2 to 1 ruling, there was a reversal. Now I'm not going to bog everybody down with the details of that, but the bottom line is as a result of that ruling at the Ninth Circuit, this Cal Chamber led coalition has now sought what is known as en banc review for the entire Ninth Circuit to review the decision. And that's currently pending. One last little piece to that, Matt, and then I'll give it back to you. Just last month, the Ninth Circuit issued an order deferring consideration of the petition until the United States Supreme Court rules on another arbitration related case, and that's Viking River Cruises Inc. Vimoriana. Now in that case, the court will decide whether the FAA requires enforcement of arbitration agreements that contain waivers for representative actions, including waivers of claims brought under the Private Attorneys General act, or paga. An oral argument is scheduled for later this month. Meanwhile, the preliminary injunction putting a hold on enforcement is still in Effect, which means AB51 is currently unenforceable and employers may still use mandatory arbitration agreements. But of course, they should do so in consultation with law legal counsel.

Well, thank you for that, Bianca. And as you can tell, a bill that was supposed to go into effect two years ago and still hasn't definitely is winding its way through the courts, as these things tend to do. So, James, you've really been into the weeds on what it is that Congress has recently passed, and the FAA is really at the heart of what they did. Can you explain what this new bill that came out of Congress is and what it does?

Yeah. So this is actually a fairly short, brief bill, especially compared to some of the COVID packages we've read through over the last couple of years. This one's pretty short. It amends the FAA to do essentially what exactly what the title says. It ends mandatory arbitration for claims of sexual harassment and assault. So, more specifically, it states in the bill that the individual alleging the misconduct can elect for a preexisting arbitration agreement to be unenforceable and invalid to the extent that the claims relate to sexual harassment or assault. So, for example, in the employment context, it means that an employee that's bringing a claim for sexual harassment cannot be forced to arbitrate those claims under a preexisting agreement that might otherwise cover those claims. So this essentially gives the individual the choice to proceed either in court or if they want to, they can voluntarily go to arbitration, which some individuals may do for privacy reasons.

So what about existing sexual harassment claims that are in arbitration currently? Can those former employees or current employees move that out into the courts under this bill now?

No, they cannot. The bill doesn't apply retroactively to existing disputes. It states that it applies to any dispute or claim that arises or accrues on or after the date of enactment, which is the fancy, formal statutory way of saying it applies to future disputes. So any disputes that are already in arbitration can't be moved to the courts under this law.

Excellent. So let's say that the litigation that Bianca described for us against AB51 is ultimately successful, and employers can continue to require arbitration agreements as a condition of employment. How does this bill play in with that?

So if employers can continue to require arbitration agreements, this bill will have an impact, and it will essentially limit the scope of those agreements and prevent employers from including sexual harassment and sexual assault claims under their arbitration agreements. So employers will need to work with their legal counsel on how this law impacts their agreements and on how they want to craft their agreements going forward.

Now, something I noticed out of the bill was that, you know, it's limited to sexual harassment, sexual assault. Like we said in the title, does the law define what it means by sexual harassment claims or sexual assault claims, because that's really a basic threshold, threshold question as to whether or not this is going to apply. Is it open to interpretation and how are disputes over that term handled?

Yeah, so the law defines the terms pretty broadly with reference to existing bodies of law. So for example, it says that a sexual harassment dispute means a dispute about conduct alleged to be sexual harassment under federal, state or tribal law. And it does similar definition with sexual assault. So this means that, for example, all the common harassment claims that we're used to seeing under, say, Title VII or the Fair Employment and Housing act, things like quid pro quo, hostile work environment, et cetera, they'll all be covered under this new law. And if there's a dispute about whether the specific claims qualify as sexual harassment or assault, the new law specifies that a judge, not an arbitrator, is going to ultimately make that determination, even if the arbitration agreement states otherwise.

Now, I think the goal ultimately is to stay out of arbitration in the courts altogether. Right. And it's especially more dangerous now that we can't keep sexual harassment claims out of court. They're going to be in court, public records and the like. So, Bianca, I think it's important to take a step forward and see what are some important steps that employers can take to help prevent claims in the first place.

Great question, Matt. So one of the most important things an employer can and actually must do is provide regular harassment prevention training to not only its employees, but supervisors. So, you know, it's important to provide high quality courses that are covering more than just the bare minimum that's really going to be ideal, especially for our supervisors who are really, they're the first line of defense against these types of claims. And we want to make sure that we are giving realistic examples of scenarios that can happen in the workplace and empowering our supervisors on how to address those. In addition to training, employers should also ensure that employees have access for actually making those complaints internally. And they should encourage an open door policy. In addition to preventing harassment in the workplace, there actually is claim many employers don't realize that there's, you have this active duty to prevent harassment in the workplace. So that's a claim that you could have on top of the harassment itself. And so when you're looking at that, whether an employer actually prevented harassment, it's important to have these open lines of communication in the workplace so that employees can have their, their claims addressed and along those lines, and lastly, employers want to make sure that they're investigating those complaints. So it's not enough just to have the avenue of how the complaints are going to be communicated, but we want to make sure that we are conducting prompt, thorough and impartial investigations.

Excellent. Well, Bianca and James, thank you for joining us today to help navigate the complex world of arbitration and sexual harassment claims.

Thanks for having us, Matt.

Thank you, Matt. It's always a pleasure.

And thank you listeners for joining us on the workplace. Please comment, share and subscribe to calchamber's podcast by visiting Calch.