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CALIFORNIA: An Introduction to Labor & Employment

Seyfarth Shaw - California Labor & Employment Practice Area Overview


The Way Litigation Is Changing 

The past year has seen significant changes in California and federal law related to arbitration agreements, including which claims may be compelled to arbitration and which claims can be brought in court. Additional significant changes in this area are expected in the coming months, as the U.S. Supreme Court is expected to issue decisions relating to arbitration. At the same time, the California Supreme Court has clarified the standard to be used for litigating claims of whistleblower retaliation. As a result of these changes, employers can expect to see an increase in litigation in the coming year.

Arbitration Agreements 

California employers have faced a long-standing legislative hostility to arbitration agreements. Recent legislative changes and upcoming court decisions will impact employment arbitration agreements going forward. Employers should familiarize themselves with these changes in the law and monitor developments in this area.

Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021

On March 3, 2022, President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 into law. This law amends the Federal Arbitration Act (“FAA”) to provide that pre-dispute arbitration agreements are not enforceable against those who allege conduct constituting sexual assault or sexual harassment. Instead, a person alleging such conduct who is a subject to a pre-dispute arbitration agreement can choose to bring a claim in court or in arbitration.

The Act provides that a court, rather than an arbitrator, determines whether the law applies to a given dispute, and whether an agreement to arbitrate is valid and enforceable in such circumstances. The law is prospective in nature in that it will only apply to disputes that arise on or after March 3, 2022, but not to disputes that arose prior to the law’s enactment.

Arbitration of Employment Disputes – Assembly Bill 51 

On October 10, 2019, Governor Newsom signed Assembly Bill 51 (AB 51) into law. The law provides that an employer cannot require an employee to sign an arbitration agreement requiring arbitration of claims under California’s Fair Employment and Housing Act (“FEHA”), or the California Labor Code as a condition of employment or continued employment. The law also prohibits agreements that require an employee to opt out of a waiver or take other action in order to preserve his or her right to bring an action in court. As such, the law erects barriers for employers seeking to compel employment-related disputes to arbitration. The law also provides that violations constitute a misdemeanor, carrying possible fines and jail time.

The law was challenged almost immediately and a district court entered an injunction that prevented the law from taking effect. The district court found that the FAA most likely preempts AB 51. However, the Ninth Circuit subsequently ruled that the law is largely enforceable and not preempted by the FAA. The Ninth Circuit found that the FAA preempts the provisions of AB 51 that impose criminal penalties on employers, to the extent they apply to executed arbitration agreements. As the dissent noted, the court’s opinion has the effect of allowing criminal sanctions against employers where the employee refuses to sign a mandatory arbitration agreement. The Ninth Circuit lifted the injunction against AB 51, which allowed the law to take effect.

The Ninth Circuit will consider granting further review of AB 51 following the United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana.

Representative Action Waivers –Viking River Cruises, Inc. v. Moriana

On March 30, 2022, the United States Supreme Court heard oral arguments in the matter of Viking River Cruises, Inc. v. Moriana. This case will decide the question of whether the FAA requires enforcement of arbitration agreements that provide that an employee cannot raise representative claims in arbitration, including those under the Private Attorneys General Act (“PAGA”). The Supreme Court’s decision could have a significant impact on the future of PAGA actions in California.

Take Away Points 

Although the law surrounding arbitration agreements continues to develop, employers should consider the following points:

• Employers can no longer compel disputes to arbitration that involve claims of sexual harassment or sexual assault. Absent consent to arbitrate from the person bringing such claims, these disputes will be litigated in court.

• As the law currently stands, employers cannot require employees to sign arbitration agreements as to claims under the FEHA or California Labor Code as a condition of employment or continued employment. This law may be subject to further court review, and employers should continue to monitor developments in this area.

• Whether employees can waive their right to pursue representative actions as part of an arbitration agreement is a question that will soon be decided by the U.S. Supreme Court. That decision may have a significant impact on employers who have such provisions in their arbitration agreements, and especially employers who are currently facing PAGA litigation.

Retaliation Claims Poised to Spike 

California has long maintained statutory protections for whistleblowers through Labor Code section 1102.5. That section makes it unlawful for an employer to retaliate against an employee who discloses information that the employee has reasonable cause to believe reveals: “A violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employee’s job duties.” Cal. Lab. Code § 1102.5.

In litigating claims asserted under 1102.5, employers have taken the position that the burden shifting framework of McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), should be applied to such claims, so that after an employer presents a legitimate, non-retaliatory, business reason for its purportedly adverse employment action, it is then the employee’s burden to demonstrate by substantial evidence that the employer’s articulated reasons for the adverse employment action were actually a pretext for retaliation.

The California Supreme Court has now clarified that standards of proof articulated by Labor Code section 1102.6, and not the burden shifting framework of McDonnell-Douglas, apply to retaliation claims under section 1102.5. Lawson v. PPG Architectural Finishes, Inc. Under section 1102.6, once an employee has demonstrated by a preponderance of the evidence that retaliation was a contributing factor in the adverse employment action, the employer then must demonstrate by clear and convincing evidence that the adverse employment action would have occurred for legitimate, independent reasons even if the employee had not engaged in activities protected by section 1102.5.

For employers, this means that it is highly likely that they will see an increasing number of retaliation claims asserted under the Labor Code—in lieu of, or as a supplement to, such claims under the Fair Employment and Housing Act, Title VII, and the other statutes typically serving as vehicles for retaliation claims. This is because defeating these claims on motions for summary judgment will be more difficult due to the higher burden of proof for employers. As a consequence of the increasing difficulty for employers to move claims into arbitration, and the heightened challenges employers are now facing in defending retaliation claims, it is a reasonably safe bet that California will remain an extremely challenging litigation environment for employers for years to come.