Calif. Arbitration Bill’s Fate Uncertain After High Court Ruling

By Toni Vranjes July 23, 2018
Calif. Arbitration Bill’s Fate Uncertain After High Court Ruling

A California bill that would ban mandatory workplace arbitration agreements has been approved by the state Assembly. However, its future is unclear in light of the U.S. Supreme Court's recent decision in Epic Systems Corp. v. Lewis.

The bill, AB 3080, would ban mandatory arbitration agreements as a condition of employment, continued employment or receipt of any work-related benefit.

While AB 3080 was spurred by the #MeToo movement against sexual harassment, the bill doesn't cover only sexual-harassment claims. It also applies to a wider array of employment claims, including all forms of discrimination and all wage and hour issues, according to Benjamin Ebbink, an attorney with Fisher Phillips in Sacramento.

Another provision of the bill would prohibit companies from limiting employees' ability to disclose instances of workplace sexual harassment.

In the Epic decision, which was issued in May, the U.S. Supreme Court upheld arbitration agreements that include class-action waivers, ruling that they're enforceable under the Federal Arbitration Act (FAA). Under these waivers, employees are prevented from pursuing actions as a group to resolve disputes with their employers. Instead, the waivers require employees to tackle these disputes on an individual basis.

The Epic ruling was a big victory for employers, according to Kate Visosky, an attorney with Kelley, Drye & Warren in Los Angeles.

"Currently, employers have that decision to support their arbitration agreements and the class-action waivers in their arbitration agreements," she said.

For this reason, the Epic decision presents major challenges for AB 3080, employment law attorneys said.

"This bill potentially has a lot of hurdles to climb, considering the current status of how these arbitration agreements are viewed in federal court," said Christina Nordsten, who is also an attorney with Kelley, Drye & Warren in Los Angeles.

AB 3080—which was introduced by Assemblywoman Lorena Gonzalez Fletcher, D-San Diego—is now being considered by the state Senate. If the bill does land on the desk of Gov. Jerry Brown, it's unclear if he would sign it.

What Would the Governor Do?

Lawyers noted that AB 3080 is similar to a bill that Brown vetoed in 2015, AB 465, which would have banned forced arbitration agreements as a condition of employment. In his message vetoing that bill, Brown wrote that "a blanket ban on mandatory arbitration agreements is a far-reaching approach that has been consistently struck down in other states" as violating the FAA.

Now, following the Epic decision, the governor might be even more inclined to reject a ban on mandatory arbitration. There's a good chance that the governor would veto AB 3080 if it reaches his desk, according to Ross Boughton, an attorney with FordHarrison in San Francisco.

"He's a Democrat, but he's also pretty practical," Boughton said.

On the other hand, the momentum from the #MeToo movement might push the governor to sign the bill, Ebbink noted.

Supreme Court Challenge?

If Brown does sign the bill, it would face legal challenges, attorneys said. The issue likely would make its way up to the U.S. Supreme Court.

Boughton said AB 3080's provision banning mandatory workplace arbitration agreements is "not enforceable and would be pre-empted by the FAA."

Ebbink noted that the Supreme Court has become more conservative since the governor vetoed AB 465. The court probably would be hostile to state interference with workplace arbitration agreements, he added.

The Epic ruling was a strong statement that the Supreme Court wants arbitration to be a protected mechanism, said Margaret Rosenthal, an attorney with BakerHostetler in Los Angeles.

"Because of that, I think there's a significant risk that if this bill is put into law, it would be struck down," she said.

What Would Employers Do?

If the bill is signed into law, California employers would be in a quandary, wondering exactly what is permitted, according to Rosenthal.

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While awaiting the outcome of legal challenges, what would companies do about mandatory workplace arbitration agreements? The reactions could vary widely.

Some California employers, relying on the Epic decision, might continue to use mandatory arbitration agreements, according to Rosenthal. Others, however, might place "opt-out" provisions in their arbitration agreements, allowing employees to opt out within a certain time period so that the agreements are not mandatory. Still other employers might decide not to use arbitration agreements anymore.

Boughton said arbitration agreements often include terms stating that arbitration proceedings will be kept confidential. If AB 3080 is enacted, companies would need to consider whether to modify those terms, he said. For example, the modified language might state that arbitration proceedings dealing with sexual-harassment claims won't be kept confidential, while other types of arbitration proceedings will be.

"I think employers would have to take a close look at their arbitration agreements and consider whether minor tweaks make sense, while the pre-emption issue is being worked out by the courts," he said.

Toni Vranjes is a freelance business writer in San Pedro, Calif.



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