California Dreaming of Arbitration Has Come to An End

This month California took the bold, aggressively employer-unfriendly, step to ban new mandatory arbitration agreements between employers and their current and prospective employees. In layman’s terms – if you’re a business in California, say goodbye to forcing employees into arbitrating discrimination, retaliation or harassment claims brought under state law. At least new ones. If you have a current agreement with mandatory arbitration included, it isn’t criminal or necessarily unenforceable; you still have a chance at compelling arbitration if the agreement was in place before January 1, 2020. And, yes, as that sentence implies, employers commit a criminal misdemeanor if they condition continued or future employment on agreeing to arbitrate claims. California evidently takes its mandatory arbitration laws seriously.

This is not the first time California has attempted to limit, or ban altogether, arbitration agreements. Earlier attempts were overturned by courts finding the Federal Arbitration Act (FAA) preempted the state’s limits on businesses requiring arbitration of its customers or employees. This new California law will not take effect until January 1, 2020, and while ostensibly designed to avoid the fate of its ancestors, there is a definite chance federal courts will similarly overturn this law.

While California receives much of the business community’s ire on this issue, it is not the only state trying to limit employers from forcing employees into private and confidential arbitration. Maryland, New York, Vermont, and Washington have all passed their own laws seeking to limit or prohibit employers from forcing employees with claims of harassment into arbitration. These states’ efforts are directly related to the #Metoo movement as the governments seek to ensure employees have the opportunity to bring their claims to the public through the court system versus being stifled and forced to private, confidential arbitration. But despite these efforts the power of the public policy behind the FAA is strong and already New York’s ban was overturned earlier this summer by a federal court.

Until the FAA is amended, tossed by Congress, or overturned by the courts (none of which are foreseeable) states’ efforts to ban arbitration agreements involving employees are likely to be challenged and preempted by this federal law. Still, this highly potential outcome is unlikely to deter many states. This is, after all, California’s third attempt. Maybe they have learned their lesson with the language of the new arbitration ban, maybe not. Probably not. While this is being sorted out, however, employers are going to have to pay attention and seriously weigh whether to continue the practice of mandating arbitration of discrimination, harassment and/or retaliation claims in California and other states with similar bans.

If you have any questions regarding arbitration agreements and their strategic value, contact any Labor & Employment attorney at Thompson Coe. Or, if you’re a member of the myHRgenius subscription HR legal counsel program, email www.myhrgenius.co or call 651-389-5000 any time.

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