July 5, 2022

It’s Time to Update Employee Arbitration Agreements

(Update 2/23/2023: The Ninth Circuit has held that AB 51, California’s attempt to ban mandatory arbitration agreements, preempted by the Federal Arbitration Act, and is therefore unenforceable. Arbitration agreements no longer have to be voluntary.) 

To ensure compliance with current California and Federal law and to benefit from recent court decisions, it is time for employers to review and update their employee arbitration agreements.

1.     Individual PAGA Claims Are Arbitrable Under Viking River Cruises

In Viking River Cruises, Inc. v. Moriana, the United States Supreme Court held that the Federal Arbitration Act preempts the rule of Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014) insofar as it precludes the arbitration of individual claims under the Private Attorneys General Act (PAGA). Now a valid arbitration agreement with a representative action waiver can be used to compel the plaintiff’s “individual” PAGA claims to arbitration. Read more about the Viking River decision here.

Employers should not expect Viking River to be the final word on this topic. The Supreme Court left room for the courts and the state legislature to find ways around the decision, and we will be monitoring those efforts closely.  But for the moment, Viking River is a win for employers. Employers should review and update their arbitration agreements to take full advantage of this case.

2.     Employment Arbitration Agreements Must be Voluntary in California

In its September 15, 2021 decision in Chamber of Commerce v. Bonta, 13 F.4th 766 (9th Cir. 2021), the Ninth Circuit Court of Appeals vacated a January 2020 preliminary injunction against certain state agencies prohibiting them from enforcing AB 51 (adding § 432.6 to the California Labor Code). AB 51 effectively banned mandatory employee arbitration agreements. As we reported last fall, the Ninth Circuit’s decision is somewhat bizarre, but with the preliminary injunction vacated, the State of California would no longer be barred from enforcing this law. Technically, the preliminary injunction remains in place until “mandate” issues on the Ninth Circuit’s opinion. Mandate has not yet issued, and it will not issue until, at the earliest, the Ninth Circuit rules on a pending motion for rehearing en banc (a decision was deferred until after Viking River). Last week, the Chamber of Commerce renewed its request for en banc review, and it wouldn’t surprise us if the case eventually works its way to the United States Supreme Court.  (Update 2/23/2023: The Ninth Circuit has held that AB 51, California’s attempt to ban mandatory arbitration agreements, preempted by the Federal Arbitration Act, and is therefore unenforceable.)

Employers may continue to enter into voluntary arbitration agreements with employees, but the language of the agreement should reflect that it is entered voluntarily and that that there will be no retaliation in the event the employee chooses not to accept the agreement. It is time to update arbitration agreements for new California employees that do not include the necessary voluntariness and non-retaliation language.

3.     The Arbitration of Sexual Assault and Sexual Harassment Claims Must be Voluntary Nationwide

On March 3, 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, amending the Federal Arbitration Act.  The law took effect immediately and rendered invalid and unenforceable any provision of a predispute agreement to arbitrate claims relating to a sexual harassment or sexual assault. Read more about the law here. Most arbitration agreements require revision in light of this new law.

Time To Review Those Arbitration Agreement Templates

The time has arrived for employers to review and update their employment arbitration agreements and practices to ensure compliance with AB 51 and the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 and to benefit from the advantages presented in Viking River.

The landscape of employment arbitration is rapidly and dramatically changing, and more changes are on the horizon. We expect to see more court action on Chamber of Commerce v. Bonta and attempts to weaken the effect of Viking River. The White House intends to pursue broader anti-arbitration legislation that would address the arbitrability of claims regarding discrimination on the basis of race, wage theft, and unfair labor practices. We are closely watching these trends, and will share any new development with you.

If you would like our assistance reviewing and updating your employee arbitration agreements, please email your Payne & Fears attorney or contact info@paynefears.com.