“No more arbitration for you!”: The California #MeToo Affect Continues

Lewitt Hackman
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Lewitt Hackman

California Governor Gavin Newsom signed groundbreaking legislation largely impacting mandatory arbitration agreements (Assembly Bill 51) and extending the deadline to file a harassment complaint from one to three years (Assembly Bill 9):

Assembly Bill 51

General

Assembly Bill 51 prohibits employers from requiring employees or applicants for employment to “waive any right, forum, or procedure for a violation” of the Fair Employment and Housing Act (FEHA) and the Labor Code as a condition of employment, continued employment, or receipt of any employment-related benefit. The prohibition applies even if the arbitration agreement gives the employee an opportunity to opt-out after signing.

The bill further prohibits employers from retaliating, discriminating, or terminating an applicant or employee because of their refusal to waive “any right, forum, or procedure” for a violation of FEHA or the Labor Code.

FAA Preemption

The author of the bill acknowledges the bill may be challenged in court “and there is some chance … it would be found preempted.” Nonetheless, supporters of the bill believe the bill does not conflict with the Federal Arbitration Act and can avoid preemption claiming it does not prohibit, discourage, or restrict anyone from entering into a mandatory arbitration agreement, if they do so freely and voluntarily.

What’s next?

Notably, Assembly Bill 51 does not apply to post-dispute settlement agreements or negotiated severance agreement. However, it is unclear what “negotiated” means.

Further, the phrase “freely and voluntary” used by the author may subject an otherwise valid arbitration agreement to costly litigation. While the Senate Judiciary Committee comments indicate Assembly Bill 51 will not alter the burden of proof in a dispute over enforceability, litigating the issue could result in significant liability to an employer if a court finds the agreement was not voluntary since the new bill permits a prevailing plaintiff (but not defendant) to recover his or her attorney’s fees.

Employers should review their arbitration agreements and policies to evaluate whether they will comply with the new law.

Assembly Bill 9

Background

To bring an FEHA claim in court, an employee must first exhaust the administrative remedy provided by the statute and file a complaint with the Department of Fair Employment and Housing (DFEH). Previously, the time limit to file a DFEH claim was one year from the alleged unlawful practice. Assembly Bill 9 extends the time limit to three years.

Why Three Years?

Per the author, the one-year time limit did not permit victims sufficient time to fully grasp what happened to them before coming forward: “Victims of all forms of discrimination and harassment may be initially unclear about what happened … This bill would address these barriers by extending the deadline to file a complaint.”

Assembly Bill 9 passed despite the Appropriations Committee’s (responsible for hearing bills that appropriate funds, result in substantial expenditure of state money, or result in a substantial loss of revenue to the state) comment that the bill may reduce federal subsidies. In certain scenarios, the federal equivalent of the DFEH (or EEOC, Equal Employment Opportunity Commission) contracts with the DFEH for dual-filed employment discrimination cases, for which the DFEH receives federal money. However, because the EEOC deadline for dual-filing is 300 days, the 3-year time limit under Assembly Bill 9 would reduce federal subsidies for these dual-filings.

What’s Next?

Though Assembly Bill 9 will not revive lapsed claims, it has the potential to increase the number of harassment, discrimination, or retaliation claims.

The extended time should incentivize employers to keep meticulous and accurate records of all claims, investigations, and mandatory harassment trainings in an effort to defend claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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