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Ninth Circuit Ruling Ensuring Consent in Employment Contracts Signals Hope for Survivors Everywhere

Ninth Circuit Ruling Ensuring Consent in Employment Contracts Signals Hope for Survivors Everywhere

By Anita Yandle, Access to Justice & Justice Catalyst Fellow

Following the MeToo movement, some state legislatures sought ways to bring light to claims of sexual harassment in the workplace. One of the barriers to shedding light on poor workplace behavior is the prevalence of forced arbitration clauses in employment contracts. These hidden and ubiquitous provisions keep employees from having their day in court by requiring them to bring their concerns to private arbitrations. The California state legislature has taken action, and despite an effort by the U.S. Chamber of Commerce to preserve forced arbitration at the expense of the rights and safety of workers, California’s law has survived a legal challenge.

The MeToo movement had brought these forced arbitration clauses to the forefront in cases such as that of Gretchen Carlson at Fox News. When she wanted to bring a sexual harassment claim against former CEO Roger Ailes, Carlson was told by her lawyers that because of a forced arbitration clause, she didn’t have a case. “[That] was one of the darkest days in my life,” Carlson told The 19th.

In addition to keeping people out of courtrooms, forced arbitration clauses often lead to secrecy and prevent systemic change because victims of harassment have to file their claims separately, rather than sharing information with each other. Take the pre-MeToo claims against American Apparel’s former CEO Dov Charney: at least five women accused him of harassment, with one saying he made her his sex slave. Four sued to get out of their contracts that included an arbitration clause, which finally brought the claims to light. Even so, because of those clauses, we may never know the extent of Charney’s harassment and abuse.

California’s legislature found these provisions and similar ones, such as non-disclosure and non-disparagement clauses, to be suspect in a world altered by the MeToo movement — especially in situations in which the employee did not know or understand what was in their employment contract. In 2019, the legislature passed California Assembly Bill 51, 2019 Cal. Stats. Ch. 711 (AB 51), and on October 10, 2019, Governor Gavin Newsom signed it into law. In enacting this law, the legislature wanted to “make sure employees are not silenced beforehand if sexual harassment takes place at a company.” In the language of the bill, the legislature declared that “it is the policy of this state to ensure that all persons have the full benefit of the rights, forums, and procedures established in the California Fair Employment and Housing Act . . . and the Labor Code.” Last week, the Ninth Circuit confirmed in Chamber of Commerce v. Bonta that most of AB 51 can stand, bringing hope to victims of workplace harassment everywhere.

Forced arbitration clauses, in short, waive constitutional rights. As the California Employment Lawyers Association (CELA) explained in their amicus brief:

 “Mandatory pre-dispute arbitration agreements, in most contexts, require workers to forfeit their rights under the First, Fifth, Seventh, and Fourteenth Amendments to the U.S. Constitution. An agreement to arbitrate often requires an agreement to forfeit the right to have the law enforced correctly, the right to cross examination, the right to appeal, the ability to conduct full discovery, the right to a free forum, and the right to an Article III judge who is obligated to apply the law.”

Because of those waivers, AB 51, among other things, reinforced that agreements to enter into arbitration in employment contracts must be consensual. Requiring knowing and voluntary consent to waiving one’s rights is simply “the federal constitutional minimum” (as the Supreme Court has previously called it), which the California legislature sought to codify at the state level.

However, some employers were apparently upset that they could no longer prevent their employees from taking them to court. The Chamber of Commerce sued, alleging that their supposed right to non-consensually mandate arbitration superseded their employees’ actual constitutional rights. Couching their argument in terms of federal preemption, the Chamber claimed that the Federal Arbitration Act prevented California from ensuring that employees have an actual choice about whether and when to sign away their right to a day in court.

“Prior to the FAA, ‘courts considered agreements to arbitrate unenforceable executory contracts’ and breaching an agreement to arbitrate generally ‘resulted in nominal legal damages,’” the Ninth Circuit explained. However, after the FAA passed, courts have often held that this law, which favors arbitration, preempts many state regulations. (This is despite the fact that the FAA was originally never supposed to apply to employment contracts in the first place, just disputes between merchants.) However, the law does not override the U.S. Constitution. While the court agreed that some aspects of the bill, such as certain penalties for employers with arbitration agreements, were preempted by the FAA, they also rejected the Chamber’s argument about the bill as a whole.

The Ninth Circuit explained that the FAA does not preempt employees’ right to agree to the terms of their own work contracts. AB 51 neither preempted the FAA through “impossibility” preemption (when it is literally impossible to comply with both the state and federal law) or “obstacle” preemption (when the state law makes accomplishing the goals of the federal law particularly difficult.) The only time AB51 even mentions the FAA is in a provision protecting the arbitration clauses that would otherwise be enforceable by it. Clearly, the court explained, the one law does not preempt the other. In plainer terms, as CELA stated in their brief, “The FAA is not even implicated before an arbitration agreement comes into existence. The Constitution and workplace statutes are.”

This case is part of Public Justice’s ongoing fight to ensure protections for workers. People enter into contracts every day — often by just clicking “I agree” to a consumer agreement online.  Of course, one of the most important contracts someone can enter into is their employment contract. Congress has repeatedly recognized that needing a source of income can lead to the most coercive and abusive of practices because of inherent power imbalances. This is why Congress has enacted so many labor protections — including by establishing minimum wages, anti-discrimination laws, workplace safety standards, and whistleblower protections, and by prohibiting practices such as child labor. Furthermore, forced arbitration clauses are disproportionately common in fields with more women and Black employees, while arbitrators are overwhelmingly white and male, undermining the enforcement of anti-discrimination and anti-harassment legislation.

In order to achieve the goals of these workplace protections, workers must be able to enforce them; if rights cannot be enforced, are they really rights at all? While people can legally waive certain rights in certain circumstances, doing so must truly be consensual. This includes the right to settle disputes in court.