Important Updates on Arbitration Law

In this episode of The Workplace podcast, CalChamber Labor and Employment Vice President Bianca Saad, and CalChamber employment law experts Matthew Roberts and James Ward discuss the recent federal law that amends the Federal Arbitration Act (FAA) to make pre-dispute arbitration agreements and class action waivers invalid and unenforceable for claims of sexual harassment or sexual assault.

Arbitration Agreements in California

Arbitration agreements, Roberts explains, generally mean that an employee waives their right to pursue any lawsuit in court, and instead would have claims against their employer (or former employer) heard by a single arbitrator. Oftentimes, employers require applicants and employees to enter into these agreements as a mandatory condition of employment.

The California Legislature passed AB 51 (Lorena Gonzalez; D-San Diego) in 2019 to ban this practice, but the law is currently being challenged in court, he says.

The law, which originally was to take effect on January 1, 2020, specifically prohibits employers from requiring an arbitration agreement as a condition of employment for applicants or for continued employment for the employees, Saad explains. The law also established penalties and the possibility of criminal punishment, which was a concern in the challenge.

AB 51 conflicts with federal law, specifically the FAA, Saad points out. The FAA has been around for almost a century and established the federal framework for enforcement of arbitration agreements. It was largely designed to prevent state courts from refusing to enforce arbitration agreements. Over the years, the U.S. Supreme Court has established that the FAA preempts any state law that prohibits or limits arbitration.

The California Chamber of Commerce and a coalition of business groups filed suit against the law and the trial court granted a preliminary injunction, putting the law on hold, she says.

The decision was appealed to the Ninth Circuit U.S. Court of Appeals, where the matter was reversed. In response, the CalChamber-led coalition sought an en banc review by all the judges of the Ninth Circuit), and the review is currently pending. Last month, the Ninth Circuit issued an order deferring consideration of the petition until the U.S. Supreme Court rules on another arbitration-related case, Viking River Cruises, Inc. v. Moriana.

In Viking, Saad says, 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 (PAGA). Oral argument is scheduled for later this month.

Meanwhile, the preliminary injunction putting a hold on enforcement on AB 51 is still in effect, which means the law is currently unenforceable and employers may still use mandatory arbitration agreements.

“But of course, they should do so in consultation with legal counsel,” she says.

FAA Changes

Earlier this month, the FAA was amended to end mandatory arbitration for claims of sexual harassment and assault, Ward explains. Individuals alleging misconduct can elect for a pre-existing 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, that means that an employee that’s bringing a claim for sexual harassment cannot be forced to arbitrate those claims under a pre-existing agreement that might otherwise cover those claims. This essentially gives the individual the choice to proceed either in court or go to arbitration, which some individuals may do for privacy reasons.

The law will not apply retroactively to existing disputes. 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 dispute that is already in arbitration can’t be moved to the courts under this law, Ward says.

Ward suggests that employers work with their legal counsel on how these federal changes will impact their arbitration agreements and on how they want to craft their agreements going forward, because this federal bill will limit the scope of agreements and prevent employers from including sexual harassment and sexual assault claims under their arbitration agreements.

The law also broadly defines sexual harassment. For example, Ward says, the law states that a sexual harassment dispute means a dispute about conduct alleged to be sexual harassment under federal, state or tribal law, and it provides a similar definition for sexual assault. This means that all the common harassment claims employers are used to seeing under Title VII of the federal Civil Rights Act or the California Fair Employment and Housing Act — things like quid pro quo, hostile work environment, etc.—will all be covered under this new law.

Preventing Claims

Some of the most important things employers can do to help prevent claims in the first place is by providing regular harassment prevention training to both employees and supervisors, Saad stresses. It’s also important “to provide high quality courses that are covering more than just the bare minimum…especially for our supervisors who are…the first line of defense against these types of claims.”

In addition to training, employers should also ensure that employees have access for actually making complaints internally, and should encourage an open door policy so that workers can have their claims addressed, Saad adds.

Lastly, employers should make sure they are investigating complaints.

“It’s not enough just to have the avenue of how the complaints are going to be communicated,” Saad says. “We want to make sure that we are conducting prompt, thorough and impartial investigations.”

CalChamber provides training for both supervisors and nonsupervisors that exceeds the state’s minimum requirements. Not only does the training educate individuals on how to recognize and address harassment and discrimination, but it also includes best practices for the workplace and raises awareness about workplace culture, respect and productivity. CalChamber Preferred and Executive Members receive 20 percent off training.Not a member? See what CalChamber can do for you.

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