California Looks to Substantially Ban Employment Arbitration Agreements

Topics: Arbitration Agreements, Discrimination, Harassment & Retaliation, New Laws & Legislation

Fueled by the need of legislators to politicize the “me-too” movement, there has been a lot of media attention in recent months on proposed legislation in many states to limit arbitration and/or confidentiality of sexual harassment-related claims.  California, like several other states, has proposed its own legislation along these lines, but now has gone even further, introducing legislation to prohibit employers from requiring employees to arbitration of any claims brought under the Fair Employment and Housing Act (FEHA) or the California Labor Code.  AB 3080 (Gonzalez Fletcher) was a spot bill/placeholder bill that, in original form, was drafted to make non-substantive changes to laws related to use of E-verify.  In late March, however, the bill was gutted and amended and is now an anti-arbitration bill.  This bill would add sections 432.4 and 432.6 to the Labor Code and would prohibit California employers from (1) requiring an applicant or employee to agree to arbitration of FEHA or Labor Code claims as a condition of employment, continued employment, or receipt of any employment-related benefit; (2) contractually prohibiting an employee or independent contractor from disclosing sexual harassment suffered, witnessed, or discovered by the employee/independent contractor.  These practices would also be made “unlawful employment practices” under FEHA, entitling employees to remedies under both FEHA and the Labor Code for violations.  In current form, the bill would not appear to prevent “voluntary” arbitration agreements (which may include agreements with limited opt-out rights), but it would still have a significant impact on the ability of employers to resolve employment-related disputes in arbitration instead of court.  If ultimately passed by the legislature and signed into law, the new law would apply to contracts for employment entered into, extended, or modified after January 1, 2019.

It is important to note that similar legislative efforts to limit employment arbitration agreements have been introduced in California in recent years, but have not succeeded.  It is unclear whether this bill will meet a similar fate.  Even if passed, it seems to me that this law still would be subject to legal challenge based on preemption by the Federal Arbitration Act (which preempts state laws that discriminate against arbitration).  Of course, the likely success of such a challenge, which would take years to resolve, would not be of much aid or protection to employers in the meantime.

This bill is opposed by many industry groups, including the California Chamber of Commerce.  We will keep you posted about further developments with this bill.