California Legislative Efforts to Ban Non-Disclosure Agreements and Arbitration Agreements in the Workplace Edging Closer to Becoming Law

By Jonathan Turner

AB 3080, a closely watched bill affecting the workplace, recently passed the Senate and now is awaiting the Governor’s final approval.  A product of the “me too” movement, AB 3080 does a number of things that are intended to prohibit employers from limiting disclosure and discussion of alleged workplace harassment or discrimination, and to participate in harassment or discrimination investigations or proceedings.  The provisions in AB 3080 appear primarily to be directed to “nondisclosure agreements” and to arbitration agreements, although neither type of agreement is expressly identified as such in the text of the bill.

The portion of AB 3080 affecting nondisclosure agreements reads as follows:

Section 432.4 is added to the Labor Code, to read:

(a) A person shall not, as a condition of employment, continued employment, the receipt of any employment-related benefit, or as a condition of entering into a contractual agreement, prohibit any applicant for employment, employee, or independent contractor from disclosing to any person an instance of sexual harassment that the employee or independent contractor suffers, witnesses, or discovers in the workplace or in the performance of the contract, or otherwise opposing any unlawful practice, or from exercising any right or obligation or participating in any investigation or proceeding with respect to unlawful harassment or discrimination.

Much of what is covered under this provision of the bill arguably is covered already under existing provisions of the California Fair Employment and Housing Act (“FEHA”), including FEHA’s anti-retaliation provisions that protect employees who oppose what they reasonably believe to be unlawful employment practices, and FEHA provisions that prohibit employers and other persons from interfering with state investigatory proceedings to determine whether violations have occurred under that statute.  However, the bill goes further than existing law under FEHA in that it would appear to bar “nondisclosure agreements” that preclude applicants, employees and independent contractors from discussing instances of sexual harassment they may have experienced or witnessed.  Presumably, this provision of the bill would apply even to settlement agreements containing confidentiality clauses, if those agreements include settlement of sexual harassment claims.  If this provision of AB 3080 is construed to cover such clauses, the bill could have significant effect on the willingness of employers to settle claims brought by their employees.  Confidentiality clauses are common in settlement agreements, and it rarely is the case that employers will not insist on such clauses before agreeing to pay any significant amount to settle an FEHA case.

The portion of AB 3080 affecting arbitration agreements reads as follows:

Section 432.6 is added to the Labor Code, to read:

(a)    A person shall not, as a condition of employment, continued employment, the receipt of any employment-related benefit, or as a condition  of entering into a contractual agreement, require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of [FEHA], including the right to file and pursue a civil action or a complaint with …any court or other governmental entity of any alleged violation.

(b)    An employer shall not threaten, retaliate or discriminate against, or terminate any applicant for employment or any employee because of the refusal to consent to the waiver of any right, forum, or procedure for a violation of [FEHA], including the right to file and pursue a civil action or a complaint with …any court or other governmental entity of any alleged violation.

While not directly referencing arbitration, these provisions of the bill would prohibit employers from requiring employees to agree to workplace arbitration policies as a condition of hire or continued employment.  These provisions reflect continuing efforts by California lawmakers to circumvent what is now firmly established federal law governing the enforcement of contractual agreements to arbitrate workplace disputes between an employer and its employees; hence, they are certain to lead to legal challenges if the bill becomes law.  The U.S. Supreme Court has made clear that under the Federal Arbitration Act (“FAA”), arbitration contracts must be placed on “equal footing” as other contracts generally, and that state law, “whether of legislative or judicial origin,” cannot interfere with this federal policy.  See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011) and Perry v. Thomas, 482 U.S. 483, 493, n.9 (1987).  Those who would argue that AB 3080’s ban on arbitration agreements should survive a challenge under the FAA, rely on the “savings clause” in the FAA, which provides that written agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  9 U.S.C. section 2.  The argument presumably is based on the premise that employer policies mandating arbitration as part of the contractual terms of employment amounts to “duress,” or otherwise are “unconscionable” and therefore not enforceable under the savings clause.

Whether or not this interpretation of the savings clause will be sustained in a legal challenge to AB 3080’s arbitration provisions remains to be seen, but it likely will be an uphill battle for those attempting to defend this part of the bill.  The Supreme Court has held that the FAA’s savings clause “does not save defenses that target arbitration either by name or by more subtle methods,” and that while the savings clause “permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability[,] the clause offers no refuge for defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Epic Systems Corp. v. Lewis, 584 U.S. __(2018); Perry v. Thomas, supra; AT&T Mobility LLC v. Concepcion, supra.

If Governor Brown signs AB 3080, the bill will be enacted into law for contracts “entered into, modified, or extended on or after January 1, 2019.”  Employers who have questions regarding this bill’s progress and legal status can contact any of the attorneys in MSK’s employment and labor law practice group.

 

 

 

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