Buried in many workers’ contracts is a little-noticed clause promising they’ll quietly hash out grievances against their bosses behind closed doors instead of in court. The question of whether these mandatory arbitration clauses — and the class-action waivers that often accompany them — are fair seemed like an arcane one until they faced the white-hot glare of the #MeToo movement.
The most famous example came in 2016, when the late Fox News chairman Roger Ailes tried and failed to force network host Gretchen Carlson into arbitration after she sued him for sexual harassment and retaliation. Her legal team managed to maneuver around the arbitration clause so she could make her claims public, but retaining high-dollar lawyers is not an option for most workers. In response to cases like these, four states — New York, Vermont, Maryland, and Washington — passed laws banning mandatory arbitration agreements, which opponents say enable sexual discrimination and harassment in the workplace by silencing victims who want any recompense.
Most of these state laws kick in only when sexual assault, harassment, or discrimination is alleged. But California’s Assembly Bill 51, which was signed into law in October, is a farther-reaching rule that aims to completely phase out the mandatory arbitration clause and class action waiver that keeps workers out of court. Like other states’ laws, California’s measure means sexual harassment and discrimination claims would be exempt from mandatory arbitration, but so would employee grievances about wages, breaks, overtime, or tips. Starting January 1, employers can no longer force new employees to “waive any right, forum, or procedure” for any violation under the state labor code.
“We used this approach to protect workers’ civil and labor rights in the workplace to the maximum extent possible,” the bill’s Democratic author, San Diego Assemblymember Lorena Gonzalez, told Bitterroot.
Jacqueline Serna, deputy legislative director for the Consumer Attorneys of California, said California’s more expansive law helps a broader swath of workers and covers more common experiences of abuse. An employee experiencing sexual harassment at work might also have a boss who is stealing their tips or not paying minimum wage, for example.
“A lot of those issues, when you experience them, they’re intersectional,” Serna said. “You don’t want to pick and choose which rights are more important.”
Despite a reputation for employee-friendly rules and regulations, California is a hotbed for mandatory arbitration clauses. Serna said she sees the clauses in all sorts of industries, including food service, retail, and the gig economy. Some employers, she said, are even asking prospective employees to commit to mandatory arbitration in their applications.
The proliferation of these clauses “undermines all the laws that we put into place,” said Steve Smith, communications director for the California Labor Federation.
That’s probably not a coincidence, said Alexander Colvin, a labor relations and law professor at Cornell University. In California, 67 percent of nonunion, private-sector workplaces require arbitration agreements — the third-highest rate in the nation behind North Carolina and Texas — according to a 2018 survey by Colvin and the Economic Policy Institute. In 1992, just 2 percent of workers nationally had a contract with a mandatory arbitration agreement; by 2018, it was 55 percent. Colvin wrote that California’s high rate may be “a consequence of employers reacting to the relatively employee-protective environment of that state’s employment laws by using mandatory arbitration to opt out of being subject to the state court system.”
California’s new law, Colvin told Bitterroot, “reflects the growing attention to arbitration, and California is ground zero for this issue. It’s where the attention for this issue is, so it’s not a surprise to me that this is going on.”
Research has shown that employers who are more experienced with arbitration tend to fare better in hearings, and individuals who can’t afford an attorney are more likely to get stuck with an arbitrator who leans against them thanks to what has been called the “repeat player effect.” Employees who do win their cases tend to receive smaller amounts than those who take their employer to court.
California’s new law aims to give employees the choice of taking a grievance with an employer into the speed and privacy of the arbitration process or to opt for a public hearing in front of a jury.
“When both parties choose arbitration freely, it can be a highly effective tool,” Gonzalez, the bill’s sponsor, said. “But it doesn’t work when corporations say you won’t be hired unless you sign away your rights.”
Arbitration clauses can also cut employees off from the California Labor Commission, which is set up to investigate state labor code violations.
“As the world stands today, you can’t go to the California Labor Commission [if you sign a mandatory arbitration clause], which is nuts,” said Cliff Palefsky, an employment and civil rights attorney in San Francisco who helped craft the California law. “You can’t go to the agencies that regulate us, which is crazy.”
One likely outcome of the law will be more wage- and hours-based class-action suits, in which employees come together to collectively sue their boss. A low-income worker being asked to, for instance, work off the clock probably can’t individually hire an attorney. But if that same worker can band together with enough coworkers experiencing the same issue, there’s likely to be enough money at stake that a plaintiff’s attorney will work the case.
“Arbitration has become a device to avoid a class action,” said Smith, with the California Labor Federation.
And Smith’s counterparts at the California Chamber of Commerce, in a way, agree. The organization put AB 51 on its “Job Killer” list, claiming the law would be a gift to trial attorneys. Employment and trade groups are now mulling strategies to challenge the law, according to Jeffrey A. Berman, a Los Angeles-based attorney with Seyfarth Shaw.
David Kadue, Berman’s colleague at Seyfarth, said the U.S. Supreme Court might not look kindly on California interfering with arbitration agreements. Indeed, when then-governor Jerry Brown vetoed a similar bill last year, he cited a 2016 Supreme Court decision that a similar provision in Kentucky was in violation of the Federal Arbitration Act.
“This bill,” Brown wrote, “is based on a theory that the [Federal Arbitration Act] only governs the enforcement and not the initial formation of arbitration agreements and therefore California is free to prevent mandatory arbitration agreements from being formed at the outset. The Supreme Court has made it explicit this approach is impermissible.” A judge in Washington state, too, ruled that state’s ban on mandatory arbitration is preempted by the Federal Arbitration Act; the same happened in New York.
The authors of California’s law say the limits they built in give it a shot at survival. For one, existing arbitration contracts or class-action waivers are grandfathered in. Further, the law doesn’t ban arbitration entirely; employees can still pursue that path.
Whether or not the law survives challenges in court, pressure from employees is causing some companies, at least in white-collar industries, to abandon mandatory arbitration. Facebook, Microsoft, Uber, eBay, and Airbnb all have ended their forced arbitration policies, though only in cases of sexual harassment or discrimination claims. Employees at Google last year staged a walkout when senior executive Andy Rubin was given a $90 million exit package after being ousted for sexual harassment. Google offered to do away with arbitration in cases of sexual harassment or assault, but organizers demanded and won a pledge this year that employees would no longer be forced to arbitrate any disputes with the company.
On Twitter, the Google group made clear they weren’t particularly optimistic about the California law’s fate: “While thrilled that CA joins NY & WA in actively fighting against forced arbitration, we know AB51 will quickly be tested in the courts. This is why we need FEDERAL legislation to settle this matter once and for all. Pass the #FAIRAct.”
The Forced Arbitration Injustice Repeal (FAIR) Act is even bolder than California’s law. Not only does it ban mandatory arbitration clauses in the workplace, but also in the consumer space. Under the proposed law, companies would no longer be able to compel consumers to enter arbitration in the fine print for a cell phone, a nursing home, or any other service that comes with a contract in modern American life. The bill, sponsored by Representative Henry Johnson of Georgia, passed the House 225-186. The Senate version, sponsored by Connecticut Senator Richard Blumenthal, may not have a prayer of passing this session, but Senate Judiciary Committee Chair Lindsey Graham gave the issue a hearing in April. The fate of California’s law, then, might hinge on whether the anti-arbitration measures gain traction at the federal level.
