Employment Alert: Stop California from Prohibiting Employment Arbitration Agreements
As we have reported recently on the blog, the California Legislature has been working to pass a bill, AB 3080, that would make most employment arbitration agreements unlawful in California. That bill has now passed both the State Assembly and the State Senate, and is headed to the Governor’s desk to sign into law or veto sometime between now and September 30, 2018. CDF LLP is a key participant in an ongoing effort to prevent AB 3080 from becoming law, not just because it is bad for California employers, but also because it is unconstitutional. Before AB 3080 was passed by the State Senate, we prepared a letter to the Legislature and to the Governor’s office, urging that AB 3080 should not be passed because it is preempted by the Federal Arbitration Act (“FAA”) and unconstitutional. Several employment law practitioners at leading employment law firms also signed the letter. Despite this effort to stop the State Senate from passing the bill, it passed out of the Senate today. We will be continuing in our effort to urge the Governor to veto AB 3080 and urge California employers to voice their objections to the bill as well. If our collective effort is unsuccessful, and AB 3080 is signed into law, we are prepared to take immediate legal action on behalf of California employers interested in seeking to enjoin the bill’s enforcement as preempted by the FAA. If you want to know more about this effort, please click here.
For those who are not familiar with the details of AB 3080, this bill, among other things, seeks to amend the Fair Employment and Housing Act and the Labor Code to make it an unlawful employment practice to require an applicant, employee, or independent contractor to agree in any contract entered into, modified, or extended on or after January 1, 2019 to arbitrate claims arising under FEHA or the Labor Code. AB 3080 also—and inexplicably—seeks to prohibit even voluntary employment arbitration agreements, whereby an applicant, employee, or independent contractor has the right to opt-out. Significantly, because AB 3080 adds provisions to Chapter 3, Article 3 of the California Labor Code, it actually criminalizes covered employment arbitration agreements under Labor Code section 433.
AB 3080 is unconstitutional. As written, the bill is preempted by the FAA. The FAA provides that arbitration agreements included in contracts evidencing a transaction involving interstate commerce “shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Based on this provision, courts consistently have rejected legislative and judicial efforts to discriminate against arbitration agreements and/or arbitration as a dispute resolution forum. This issue already has arisen repeatedly in California. For example, in 2014, the California Legislature passed AB 2617, which was later signed into law, prohibiting mandatory, pre-dispute arbitration agreements that waive the right to pursue a civil action under certain California civil rights statutes. After enactment, AB 2617’s validity was challenged on FAA preemption grounds, and the court held that AB 2617 was invalid because it was preempted by the FAA. Saheli v. White Mem’l Med. Ctr., 21 Cal.App.5th 308, 326 (2018) (“the Legislature placed special restrictions on waivers of judicial forums and procedures in connection with such claims. In practice, such restrictions discourage arbitration by invalidating otherwise valid arbitration agreements. It is precisely this sort of hostility to arbitration that the FAA prohibits.”)
The same fate awaits AB 3080 based on the text of the FAA itself as well as nearly four decades of authority striking down contrary state laws. See, e.g., Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S. Ct. 1421 (2017) (FAA preempts state law based on “contract formation” since law applied only to arbitration provisions); DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (2015) (FAA preempts state law applied only to arbitration agreements); Preston v. Ferrer, 552 U.S. 346 (2008) (FAA preempts contention that state law grants state commissioner exclusive jurisdiction to decide issue the parties agreed to arbitrate); Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996) (FAA preempts state statute that required special notice requirements for arbitration agreements, as such notice requirements were not required for all other contracts); Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995) (FAA preempts state law requiring judicial resolution of claims involving punitive damages); Perry v. Thomas, 482 U.S. 483 (1987) (FAA preempts state-law requirement codified by California Labor Code section 229 that litigants be provided a judicial forum for wage disputes); Southland Corp. v. Keating, 465 U.S. 1 (1984) (FAA preempts state financial investment statute’s prohibition of arbitration of such statutory claims); Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899 (2015) (FAA preempts any state statute, including the California Consumer Legal Remedies Act, that interferes with arbitration, such that a class action waiver in a mandatory consumer arbitration agreement is enforceable); Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014) (class action waiver in employment arbitration agreement is enforceable under FAA; federal law preempts any other rule).
If the bill is signed into law by the Governor, it will wreak legal havoc immediately on businesses statewide. Employers will be left in an uncertain place with respect to continuing policies and practices of having new hires sign arbitration agreements. Even though these practices clearly are lawful under the FAA and well-established California law, employers who continue these practices will be exposed to costly litigation, penalties and attorneys’ fees associated with litigating the lawfulness of their arbitration agreements. We, therefore, urge you to voice your opposition to AB 3080 to the Governor’s office now.
Again, if you want to know more about our firm’s efforts to stop AB 3080, please click here.