AB 51 at a Crossroad: Can California Employers Still Compel Employees to Arbitrate Disputes?

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California Assembly Bill 51 (“AB 51”) has been in the news because it imposes a far-reaching ban on California employers requiring employees to arbitrate employment disputes. AB 51 was set to take effect on January 1, 2020, but its effect was temporarily stopped by a court injunction issued by U.S. District Judge Kimberly Mueller on December 30, 2019, in a lawsuit filed by the U.S. and California Chambers of Commerce. A fuller hearing on whether the court will extend the injunction is set for January 10, 2020. If the injunction is extended, AB 51 will remain in limbo as long as that case remains pending, and very possibly permanently.

AB 51, if it is allowed to take effect, would have far-reaching implications for California employers who use arbitration agreements for resolution of disputes with employees. AB 51 was signed into law by Governor Gavin Newsom on October 10, 2019, and applies to “contracts for employment entered into, modified, or extended on or after January 1, 2020.” The law prohibits any person from requiring applicants and employees, as a condition of employment, continued employment, or the receipt of any employment-related benefit, to waive any rights, forum, or procedure established by the California Fair Employment and Housing Act (“FEHA”) and the California Labor Code.

The Impact of AB 51
Although AB 51 was originally promoted to target the #MeToo movement and was characterized as a anti-sexual harassment law, because many sexual harassment claims against employers have been kept from public view by resolutions in private arbitrations rather than public court proceedings. But the new law covers much more than just sexual harassment claims. In practical effect, AB 51 would prohibit most employers from requiring employees to sign mandatory arbitration agreements for nearly all types of employment law claims, including any discrimination claims covered under FEHA and for any claims brought under the California Labor Code. AB 51 also precludes employers from threatening, retaliating or discriminating against, or terminating any job applicant or employee for refusing to consent to arbitration or any other type of waiver of a judicial “right, forum, or procedure” for violation of the FEHA or the Labor Code.

Nor can employers avoid AB 51 by having a standard arbitration agreement that requires applicants or employees to “opt out” to avoid. The law effectively prohibits employers from using voluntary opt-out clauses to avoid the reach of the bill. New California Labor Code Section 432.6(c) states that “an agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment.”

In addition, new Government Code Section 12953 states that any violation of the various provisions in AB 51 will be an unlawful employment practice, subjecting the employer to a private right of action under FEHA. Although this will presumably require an employee to exhaust the administrative remedy under FEHA, this provision would nevertheless lead to further exposure for California employers who utilize arbitration agreements with their employees. Importantly, however, AB 51 explicitly does not apply to post-dispute settlement agreements or negotiated severance agreements.

Federal Preemption of AB 51?
Generally, the Federal Arbitration Act, 9 U.S.C. § 1, et seq., (“FAA”) preempts state laws like AB 51 that attempt to regulate or restrict arbitration agreements. Under the FAA, a state may not pass or enforce laws that interfere with, limit, or discriminate against arbitration, and state laws attempting to interfere with arbitration have repeatedly been struck down by the U.S. Supreme Court as preempted by the FAA. AB 51, however, expressly states that it does not invalidate a written arbitration agreement that is otherwise enforceable under the FAA. Proponents of AB 51 argue that it is not preempted by the FAA because it only impacts “mandatory” arbitration agreements and does not affect “voluntary” agreements.

Impending Court Challenges
Many questions surrounding the validity and application of AB 51 remain unanswered. Therefore, legal challenges on the ground that AB 51 is preempted by the FAA were inevitable. On December 6, 2019, the U.S. and California Chambers of Commerce filed a complaint in the U.S. District Court for the Eastern District of California, alleging that AB 51 is preempted by the FAA. The complaint seeks a permanent injunction to halt enforcement of AB 51 until its legality is determined. The January 10, 2020 hearing of the preliminary injunction may give strong indication which way the Court will turn on the issue for the time being, but the ultimate determination will likely take years to wend its way through the Ninth Circuit Court of Appeal and perhaps the U.S. Supreme Court.

What Should Employers Do In Response to AB 51?
As this challenge to AB 51 makes its way through the courts, employers with ongoing arbitration agreements (or those interested in implementing arbitration programs) face a difficult choice starting in 2020: Play it safe and strike all mandatory arbitration agreements, or maintain the status quo until the litigation plays out. There is no one-size-fits-all approach that will work for every employer.

Employers currently using arbitration agreements should consider either staying the course based on the assumption that AB 51 will be held preempted by the FAA and therefore unenforceable, or suspending their arbitration programs until more clarity on AB 51 is provided. Employers implementing arbitration programs after January 1, 2020 should consider including in their arbitration agreements specific language to conform with Labor Code 432.6 and emphasizing the voluntary nature of the agreement.

The attorneys at Conkle, Kremer & Engel remain vigilant on employment law developments to advise businesses on all aspects of employee legal relations, including updates on the use of arbitration agreements as uncertainty looms.

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Timed Out vs Youabian: The Conkle Firm Establishes that the Right of Publicity is an Assignable Property Right

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It is virtually impossible to get through a day without seeing the “right of publicity” in action.  Everywhere, there are advertisements featuring photographs of professional models and celebrities of every variety published to sell all types of products and services.  It is strange, then, that no statute or case precedent in California specifically established that models and celebrities have the ability to assign or license those publicity rights for proper use and for enforcement if their likenesses are misused.  Until now.

On September 12, 2014, the California Court of Appeal agreed with the arguments of Eric Engel of the Conkle Firm (working with co-counsel at Hall & Lim), and established the first published precedent in California that explicitly holds that the right of publicity is assignable.  In Timed Out, LLC v. Youabian, Inc., Case No. B242820, the Second District Court of Appeal finally settled a long-simmering dispute that had confused many lower courts:  Whether the right of publicity is a “personal right” that can only be exercised during lifetime by the individual owner, or whether the right of publicity is a form of intellectual property that can be freely assigned and licensed to others for use and enforcement.

The dispute had its origin many years ago, when an influential tort law treatise by famed Professor Prosser observed that the right of publicity historically derived from the “right of privacy.”  The classic form of the “right of privacy” is protection against hurt feelings and injury to personal reputation that can occur when personal information about a private individual is published without her consent.  That type of injury is considered personal in nature and cannot generally be assigned.  But, as the Timed Out decision observed, the right of publicity has evolved away from its origin into a distinctly commercial and non-personal interest.

The right of publicity is now virtually the opposite of the original right of privacy:  The right of publicity is the ability of a person to control the commercial value of the use of her image and information.  Timed Out recognizes that a person’s likeness, voice, signature or other identifying characteristics can have substantial commercial value, regardless of whether the person is a celebrity and regardless of whether the commercial value of the identified person’s “persona” is created by happenstance or by investment of great time and effort.  Timed Out finally establishes that the value created is a form of property, freely assignable by the person who owns it.

The Court of Appeal also resolved a separate important issue that is frequently in dispute in right of publicity actions:  Whether federal copyright law subsumes and preempts right of publicity claims.  Timed Out v. Youabian established that the right of publicity is distinct from copyright interests in a photograph or image, and that right of publicity claims generally are not preempted by federal copyright laws.

The effect of Timed Out LLC v. Youabian, Inc. for models, celebrities, manufacturers, advertisers and resellers is to finally establish that the right of publicity can be licensed and assigned to third parties, and enforced by third parties such as Timed Out, and that such rights are independent of federal copyright interests.  That means models and celebrities no longer have to make the difficult decision whether it is worth their time, expense and effort to pursue claims when their publicity rights are violated – they can assign the affected publicity rights to agencies such as Timed Out to pursue the claims.  Manufacturers, advertisers and resellers will no longer waste effort and time attempting to determine whether the publicity rights were assignable.  They can and should instead focus on establishing whether they had the necessary rights to use the image, photograph, likeness, voice or other identifying characteristic of the “persona” of the model or celebrity.  This puts a premium on making sure that any “model releases” obtained prior to advertising are well-written and appropriate for each particular use of the model or celebrity’s photograph, image, likeness or other identifying features.

Conkle, Kremer & Engel counsels and helps clients avoid these kinds of issues with effective model releases, licenses and assignments.  Timed Out v. Youabian demonstrates that CK&E is also at the forefront of enforcing the right of publicity when model and celebrity rights are violated.

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