"The right to trial by jury is fundamental to our system of justice and should not be sacrificed for the sake of the corporate bottom line," says Kamran Shahabi of Valiant Law.
A divided panel of the U.S. Court of Appeals for the Ninth Circuit ruled on Feb. 15 that AB51, California’s law barring mandatory arbitration in employment agreements, was preempted by the Federal Arbitration Act (FAA). The decision in Chamber of Commerce v. Bonta (No. 20-15291 D.C. No. 2:19-cv-02456- KJM-DB) cheered business owners, but it greatly distressed worker advocates.
Once a relatively rare practice, today more than 60 million workers are subject to mandatory arbitration. The Economic Policy Institute and the Center for Popular Democracy predict that by 2024, almost 83% of the country’s private, nonunionized employees will be subject to mandatory arbitration, an increase of 56% since 2017.
According to the U.S. Department of Labor, two-thirds of those workers make less than $13 per hour. Arbitration clauses are routinely buried in the fine print of employment contracts, not subject to negotiation, and employees who want to get or keep their jobs sign away their right to bring claims before an elected impartial judge or jury of their peers for wage theft, discrimination, and other violations of federal and state employment laws. Arbitration tends to disadvantage workers who, on average, win less often and receive far lower damages in arbitration than they do in court, according toa 2015 report by the Economic Policy Institute.
Although the state may ask for an en banc ruling or seek to appeal the decision, there is little chance that mandatory arbitration will be going away any time soon. The FAA has become a fundamental part of U.S. business, and the Supreme Court has repeatedly upheld the right of businesses to require arbitration in both commercial and employment agreements. Anything that limits this right, including state laws barring mandatory arbitration in employment contracts, has been held to be preempted by the FAA.
Following the Ninth Circuit’s decision, the mandatory arbitration battleground will likely shift to an analysis of the fundamental fairness of the arbitration process. Last year, Congress created a carve-out for claims of sexual harassment and sexual assault. Apparently concerned about the negative consequences of requiring women who were sexually exploited in the workplace to go through arbitration, the lawmakers—on a bipartisan basis—enacted HR 4445, the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.”
If public policy supports an exemption for sex-based workplace claims, why shouldn’t the same policy exempt from mandatory arbitration worker claims for race, age, disability and other forms of discrimination and harassment? California seems to have already moved in this direction with respect to nondisclosure and non-disparagement agreement. Arbitration agreements could potentially be the next card in the state’s equity deck.
Beginning Jan. 1, 2019, the Stand Together Against Non-Disclosure (STAND) Act carved out claims for sexual harassment and assault, as well as workplace harassment and discrimination based on sex, from settlement agreements. Victims of such misconduct were no longer required to abide by confidentiality and non-disclosure provisions as a condition of receiving compensation, nor could they be kept from disparaging the companies from which they received settlement money.
It took two more years before legislators officially recognized that all forms of workplace harassment and discrimination are abhorrent. Effective Jan. 1, 2022, the “Silenced No More Act” was added to the equation, extending the prohibition against nondisclosure and non-disparagement clauses from sex-based claims to other forms of harassment and discrimination, including claims based on race, religion, color, national origin, ancestry, disability, medical condition, familial status, gender, age, and all other protected characteristics.
Could California take the same approach with respect to mandatory arbitration? The harm caused by discrimination and harassment is no different for a worker whose race or religion has made him a victim. In fact, the harm may be far greater for minorities who fear losing their jobs and being unable to find new work if they speak up. The Department of Labor, reviewing data on claims under the Fair Labor Standards Act, found that workers subject to mandatory arbitration bring 98% fewer claims compared to those not subject to mandatory arbitration.
Given the aggressive posture of the Chamber of Commerce and the strong position taken by the Ninth Circuit, however, there is a good chance that any state law expanding the carve-out will ultimately be challenged and struck down. The solution may instead rest with Congress, which has the power to build on what it has already put into place. If women’s #MeToo stories touched lawmakers’ hearts, the stories of Black, brown, and Latino workers who have been bullied and marginalized should bring them to tears. Workers with physical and mental disabilities deserve their day in court just as much as—if not more so than—able-bodied workers whose sexuality was used against them in the workplace.
All employees deserve to be treated with respect and fairness. The nature of their victimization should not dictate how their claims are handled by the law. The right to trial by jury is fundamental to our system of justice and should not be sacrificed for the sake of the corporate bottom line.
Kamran Shahabi is the managing partner at Valiant Law, where he represents clients in complex labor, employment, general liability and business litigation.