Changing Messages from Courts on AB 51: Now Employers Cannot Require Arbitration Agreements

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For those employers who have been following the evolving history of Assembly Bill 51 (“AB 51”), which regulates California employers’ ability to have agreements to arbitrate any disputes with their prospective or hired employees, there is a new twist:  In a September 15, 2021 decision, Chamber of Commerce of the U.S., et al. v. Bonta, et al., Case No. 20-15291, the Ninth Circuit Court of Appeal reversed a District Court decision to conclude that the Federal Arbitration Act (“FAA”) did not preempt California AB 51’s ban on employment conditioned upon mandatory arbitration agreements. As explained below, this Ninth Circuit ruling may soon have a substantial impact on employers’ arbitration policies going forward.

In 2019, California passed AB 51, which added section 432.6 to the California Labor Code and section 12953 to the California Government Code to generally prohibit employers from requiring applicants or employees to agree to arbitrate as a condition of employment. AB 51 made it illegal for an employer to require applicants or 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 Conkle firm has written previously about the potential effects of AB 51.

AB 51 had been set to take effect on January 1, 2020, but on December 30, 2019, U.S. District Court Judge Kimberly Mueller issued a preliminary injunction, preventing AB51 from taking effect. Judge Mueller concluded that “AB 51 placed agreements to arbitrate on unequal footing with other contracts and also that it stood as an obstacle to the purposes and objectives of the FAA.” Bonta, No. 20-15291 at 12. In other words, Judge Mueller decided that AB 51 discriminated against arbitration agreements in a manner that is prohibited by the superseding federal law of arbitrations, the FAA.

California appealed Judge Mueller’s ruling.  On September 15, 2021, the U.S. Court of Appeals for the Ninth Circuit issued a split (2-1) decision partially reversing the District Court’s order. The Ninth Circuit held that the FAA did not preempt AB 51 with respect to its prevention of conditioning employment on the signing of an arbitration agreement. On this basis, the Ninth Circuit vacated the preliminary injunction that had stopped AB 51’s enforcement, so at present there is nothing stopping AB 51 from taking effect very soon.

For employers, this means that, unless there are further decisions by the Ninth Circuit or the United States Supreme Court, AB 51’s mandate that employers cannot condition employment or continued employment on the signing of an arbitration agreement will shortly go into effect. However, employers should be aware that AB 51 does not apply retroactively, which means that arbitration agreements previously signed by employers before AB 51 can still be enforced.  ([Proposed] Labor Code §432(f).)

A common question Conkle, Kremer & Engel attorneys are receiving is whether, even under AB 51, an employer is allowed to request that employees or prospective employees sign an arbitration agreement. The answer is yes. However, because the Ninth Circuit’s decision is somewhat muddled on this point, there is no clear answer to the natural follow up question, “What can I do if the employee refuses?”

The Ninth Circuit reasoned that the enforcement provisions of AB 51 are preempted “to the extent that they apply to executed arbitration agreements covered by the FAA.” Bonta, No. 20-15291 at 29. The dissent in Bonta attacks the majority’s reasoning as illogical:

In case the effect of this novel holding is not clear, it means that if the employer offers an arbitration agreement to the prospective employee as a condition of employment, and the prospective employee executes the agreement, the employer may not be held civilly or criminally liable. But if the prospective employee refuses to sign, then the FAA does not preempt civil and criminal liability for the employer under AB 51’s provisions.

Bonta, No. 20-15291 at 47. As the dissent argues, the majority’s reasoning could result in liability to the employer where the employer fails while attempting to engage in the prohibited conduct of forcing an employee or prospective employee to sign an arbitration agreement, but the employer would not have liability when the employer succeeds in engaging in that same prohibited conduct.

What does this ultimately mean for employers? We expect the Ninth Circuit’s ruling to be challenged by a request for an en banc review by a larger panel of the Ninth Circuit’s justices, or by a writ to the U.S. Supreme Court (which has recently been quite hostile to Ninth Circuit rulings that it has chosen to review).  Such a challenge could result in yet another “stay” that would effectively restore the injunction issued by Judge Mueller and preclude AB 51 from taking effect. However, unless a stay is issued, AB 51 is set to go into effect in the near future.

While much uncertainty remains as a result of the Ninth Circuit’s ruling, AB 51 will increase potential liability for employers that condition employment on arbitration agreements, as well as provide more power to employees who do not wish to arbitrate. Employers that currently have policies conditioning employment or continued employment on the signing of an arbitration agreement should continue to monitor the status of AB 51, should prepare for the possibility that it will not be able to require arbitration agreements going forward and should reevaluate the benefits and risks related to conditioning employment on the signing of an arbitration agreement.

CK&E attorneys keep updated on developments in the law that affect employers in California, including their rights to arbitrate disputes with applicants and employees.  Stay tuned for additional developments in this saga of AB 51.

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LGBTQ Discrimination is Now Prohibited Nationally, but California was Ahead of the Trend

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As headlines across the country have blared, on June 15, 2020 in Bostock v. Clayton County, Georgia the U.S. Supreme Court ruled that firing an individual for being homosexual or transgender is unlawful employment discrimination on the basis of sex under Title VII of the U.S. Civil Rights Act of 1964. But this rule is nothing new in California, which has long prohibited employment and housing discrimination on the basis of an individual’s LGBTQ characteristics.

Title VII’s message is “simple but momentous”: An individual employee’s sex is “not relevant to the selection, evaluation, or compensation of employees.” The statute’s message for our cases is equally simple and momentous: An individual’s homosexuality or transgender status is not relevant to employment decisions.

Bostock v. Clayton County, Georgia, U.S. Supreme Court

In bold and straightforward language the U.S. Supreme Court’s Bostock decision affirmed that any consideration of sex, homosexuality or transgender status in the course of adverse employment decisions is a violation of Title VII, even if there were other factors in the decision:

An employer violates Title VII when it intentionally fires an individual employee based in part on sex. It doesn’t matter if other factors besides the plaintiff ’s sex contributed to the decision. And it doesn’t matter if the employer treated women as a group the same when compared to men as a group. If the employer intentionally relies in part on an individual employee’s sex when deciding to discharge the employee—put differently, if changing the employee’s sex would have yielded a different choice by the employer—a statutory violation has occurred.

California’s equivalent rule is based on its Fair Employment and Housing Act (FEHA), which prevents employers from in any manner “discriminating” against persons based on their sex, gender, gender identity, gender expression or sexual orientation (among many other protected classes). While news stories about the Bostock decision emphasized hiring and firing decisions, “discrimination” can involve much broader employment concerns that involve consideration of prohibited classifications, such as:

  • – Transferring, demoting or taking other “adverse employment actions” with respect to an employee
  • – Paying an employee less than similarly situated employees
  • – Providing fewer or worse benefits to an employee than similarly situated employees
  • – Requiring additional conditions of employment for one employee compared to similarly situated employees

The U.S. Supreme Court’s decision did not weaken California’s existing protections for gay and transgender individuals, but provides an additional source of protection for them. California employers should continue to actively prohibit and take all reasonable steps to prevent discrimination in the workplace, and keep in mind that unlawful “discrimination” can encompass many types of adverse employment actions beyond hiring and firing decisions.

To guide our business clients, Conkle, Kremer & Engel attorneys stay updated on the latest developments in employment law, including anti-discrimination and wage & hour concerns.

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No Fooling! On April 1, Almost All Employers are Subject to New Employment Regulations in California

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Effective April 1, 2016, new regulations of the California Department of Fair Employment and Housing (DFEH) impose stringent new anti-discrimination and anti-harassment requirements on almost all employers having any employees in California.  Unlike in the past, the new amendments to regulations under California’s Fair Employment and Housing Act (FEHA) apply to any employer having five or more “employees,” any of whom are located in California.  The word “employees” is important, because the new FEHA regulations count toward the minimum of five “employees” unpaid interns, volunteers and persons out on leave from active employment.  Further, it appears that this new FEHA regulation is intended to apply even to employers with headquarters outside of California if any of their employees are located in California.

The FEHA regulatory amendments require all affected employers to have written policies prohibiting workplace discrimination and harassment.  The policies must apply to prohibit discrimination and harassment by co-workers, who are made individually liable for their own violations, and by third parties such as vendors in the workplace.  The regulations demand that the written policy list all currently-protected categories protected under FEHA:  Race, religion, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, and military or veteran status.  Prohibited “sex discrimination” includes discrimination based on pregnancy, childbirth, breastfeeding and related medical conditions.  Interestingly, the regulations also prohibit discrimination against employment applicants holding a special California driver’s license issued to persons without proof of legal presence in the United States.  It is not yet clear how this will work in conjunction with the employer’s existing Federal obligation to confirm eligibility for employment.

The employer’s written policy must specify a confidential complaint process that satisfies a number of criteria.  Workplace retaliation for making good faith complaints of perceived discrimination or harassment is prohibited.  The written policy must be publicized to all employees, with tracking of its receipt by employees.  If 10% of the employer’s work force speaks a language other than English, the written policy must be translated to that language.

Further, the new regulations attempt to resolve a number of uncertainties about who is protected, specifying that both males and females are protected from gender discrimination, and requiring that transgender persons be treated and provided facilities consistent with their gender identity.  There are many other changes, such as a new entitlement to four months for pregnancy leave that is not required to be taken continuously.  If an employer has more than 50 employees, there are additional requirements, such as periodic sexual harassment prevention training for supervisors.

Employers operating in California are well advised to review their policies and practices, and to consult with qualified counsel regarding changes that may be required.  Conkle, Kremer & Engel attorneys help clients remain compliant with laws, regulations and case developments affecting employers in California.

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