California, Other States Look to End Arbitration, Nondisclosure Agreements for Harassment Claims

Author: Robert S. Teachout, XpertHR Legal Editor

August 29, 2018

The California legislature passed a new bill restricting the use of nondisclosure and mandatory arbitration agreements in sexual harassment claims. The bill was passed in response to the #MeToo movement and the discovery of numerous instances of workplace sexual harassment where the victims were forced to remain silent to settle their claims. The bill has been sent to Governor Jerry Brown's office, but he has not given any indication of whether he will sign it. Brown vetoed a similar bill in 2015.

California AB3080 would prohibit the use of two contract clauses lawmakers claim are often used to silence victims and witnesses of workplace sexual harassment - nondisclosure agreements and mandatory arbitration. First, the bill would make it unlawful for employers, as a condition of employment, continued employment or receipt of benefits, to prohibit workers from disclosing instances of sexual harassment, opposing unlawful practices or participating in any investigation relating to harassment or discrimination.

The bill also would prohibit employers from making employment and benefits contingent on accepting any agreement in which the employee waives rights to any particular forum or procedure for dispute resolution of violations of the California Fair Employment and Housing Act (FEHA) or the Labor Code. Furthermore, the law makes it unlawful for employers to threaten or discriminate or retaliate against employees who elect not to sign such agreements.

If enacted, the bill would apply to contracts or agreements entered into, extended or modified on or after January 1, 2019, and also would cover contracts with independent contractors. Violations would be prosecuted as unlawful employment practices under FEHA.

Other states have enacted or are pursuing similar legislation. New York, Tennessee and Washington already prohibit the use of a nondisclosure agreement within sexual harassment settlement agreements. Bills in New York (SB7848A) and South Carolina (HB4433) would prohibit mandatory arbitration clauses based on sexual harassment claims. The Massachusetts General Assembly is weighing a bill (HB4058) that would void employment contract provisions in which an employee waives "any substantive or procedural right" relating to discrimination and harassment claims. And New Jersey has introduced identical bills in the Senate (SB121) and Assembly (AB1242) barring agreements in employment contracts that "conceal details relating to discrimination claims.

However, such state efforts may be preempted by the Federal Arbitration Act (FAA). The Supreme Court has heard numerous cases about whether the FAA preempts state law. It has consistently held that the FAA preempts any state requirement that "stands as an obstacle" or restrains the enforceability of mandatory arbitration agreements. Most recently, the Supreme Court ruled in Epic Systems that companies may compel their employees to arbitrate workplace disputes individually rather than as part of a class action.