In what will be one of the biggest wins for California employers this year, the U.S. Supreme Court has ruled that waivers of employees’ individual claims under California’s Private Attorneys General Act of 2004 (PAGA) are enforceable. The court’s decision in Viking River Cruises, Inc. v. Moriana, released on June 15, 2022, offers employers a lifeline in avoiding PAGA litigation.

For many years, employers operating in California have suffered a barrage of costly lawsuits brought under PAGA. The Viking River decision gives employers the most effective means of protecting themselves from PAGA since the enactment of the law.

However, in order to take advantage of the Viking River ruling, employers must bring their arbitration agreements in line with the decision and take additional steps. See our in depth discussion of the ruling and recommended employer action items in our Alert found here.

For advice specific to your workplace, please contact the author or your Fox Rothschild LLP counsel.

This post provides general information and does not constitute legal advice to any person with respect to any circumstance.  This post does not create an attorney-client relationship with any person. 

Think back pre-Covid, the end of 2019, a law was set to take effect in California that banned mandatory arbitration, and imposed criminal penalties on employers for mandating arbitration.  This law (AB51) also prohibited the often used opt-out clauses, which actually are allowable under current California law and rebut procedural unconscionability under the Armendariz standard.

AB51 was stopped at the last minute (by a temporary restraining order at year end 2019), then an injunction in January 2020 in the US District Court.  So mandatory arbitration remained legal.  Many felt this ruling was correct, that AB51 conflicted with the Federal Arbitration Act, and was therefore unconstitutional.

Fast forward to today, as if operating in California weren’t hard enough, the 9th Circuit has made it more complicated by ruling that AB51 is only partially unconstitutional (as to the criminal penalties for existing agreements) (Chamber of Commerce v. Bonta).  However, as to imposing arbitration only when both the employer and the employee agree, well that may be fine.  So, back to the US District Court the case goes.

Given the vigorous dissent (and the circuit split), maybe the 9th Circuit will rehear the case en banc, or the US Supreme Court will take up this issue.  But in the meantime, depending on their risk tolerance, California employers are faced with a panoply of options on what to do with their current mandatory arbitration agreements (or their existing arbitration agreements with opt outs).

A conservative option is to do away with all mandatory arbitration immediately or arbitration agreements that require opt-out, and make them all truly voluntary both going forward for new hires and for your current workforce.  But oh my, will this have an impact in that many workers will not voluntarily sign.

A less conservative option is to wait-and-see if this decision is stayed pending further appeal.  Also perhaps to reconsider your approach going forward while all of that is pending (such as changing your protocol for new hires).

Which decision is right for your business is a fact specific inquiry to discuss with your employment counsel!

Post updated on September 18, 2021.  Please see this Alert for a more detailed analysis of this ruling and of employer options in response.    

As someone who represents employers, I’ve long been a proponent of arbitration as a way to limit exposure to employment claims. I have colleagues who disagree and I recognize that it’s a complicated issue. So starting about five years ago, I’ve been laying out what I saw as the pros and cons of mandatory workplace arbitration. I did so to enable employers to make informed decisions on their own as to what course to take.

Like so much of employment law (and life in general), the only constant is change. Since I wrote on this topic last October, a federal district court ruled that AB 51 (seeking to ban mandatory workplace arbitration) was unenforceable, a state appellate court issued a decision restricting third-party discovery (Aixtron, Inc. v. Veeco Instruments Inc.), and COVID-19 has drastically decreased courts’ ability to get civil cases to trial. So given the current situation, here’s what I see as the pros and cons.

The Pros

  1. You avoid runaway, emotion-fueled jury verdicts. Any skilled plaintiffs’ trial lawyer knows how to appeal to jurors’ emotions. Those techniques don’t work as well on an experienced arbitrator. For that reason, while arbitration awards can be substantial, they tend to be more closely rooted in reality.
  2. The procedures (including discovery) are usually more streamlined than cases in court. Usually, that’s a benefit for the employer, who’s bearing the cost of the proceedings.
  3. The cases tend to settle more cheaply. This is a function of item 1 above. Employees and their attorneys can’t base their negotiation position on the fact that, if they just get before a jury, they have a shot at a windfall.
  4. Cases usually resolve more quickly in arbitration than in court.
  5. The attorneys’ fees are usually lower.
  6. If you win, the other side’s opportunity to appeal is very limited.
  7. Since the Supreme Court decided Epic Systems Corp. v. Lewis in 2017, it is now clear that you can require employees to waive the right to pursue class actions.
  8. It’s always been a struggle to get employment cases to trial. Every trial lawyer knows the frustration of preparing for trial, getting your witnesses prepared, lugging your files to court, and being told there are no courtrooms available and to come back in a few months. Given court closures due to COVID-19, and the need to give criminal trials priority, that problem is not going away anytime soon. Arbitration hearings, in contrast, usually proceed as scheduled.
  9. To the extent that proceedings take place by remote video, a jury trial will be far more unwieldy than an arbitration hearing. Trying to assess whether jurors are engaged and how they’re reacting by video seems especially daunting.

The Cons

  1. It’s easier for unrepresented parties to bring weak claims in arbitration. Because there are fewer procedural rules, it’s easier for a party to proceed even if they can’t convince a lawyer to take their case.
  2. Forum and arbitrator costs are higher and, in California and many other jurisdictions, the employer bears the vast majority of those costs.
  3. While Epic Systems resolved the issue of class action waivers, the California Supreme Court has said “no” to mandatory arbitration of Private Attorney General Act claims. Eventually, the U.S. Supreme Court may need to address that issue. But it’s not eager to do so, having passed up numerous opportunities.
  4. As our friends at Wage & Hour – Developments and Highlights have pointed out, plaintiffs’ lawyers who previously filed class actions may now start filing multiple individual arbitrations for wage and hour violations, which could subject employers to burdens and expenses that rival class actions.
  5. As part of the #MeToo movement, there have been concerted attempts by some to argue that arbitration agreements protect harassers. However, any remedy that an employee can recover in court in California against a harasser is available to the same extent in arbitration. I’ve also heard  arbitration attacked as a “secretive” process. It’s true that arbitration hearings are generally more private than court trials. But I know of nothing that prevents a claimant in arbitration from publicizing her claims however she wants. Still, there’s no question that the decision to adopt an arbitration program can be characterized as coercive or oppressive by certain groups.
  6. If you lose at arbitration, your opportunity to appeal is very limited.
  7. It can be harder to get cases out on dismissal or summary judgment.
  8. While it hasn’t been my experience, some say that arbitrators tend to “split the baby.”
  9. Based on the Aixtron decision, unless the arbitration agreement specifically allows it, you may not be able to subpoena information from third parties for discovery. I don’t know if that disadvantages one side over another, but it’s worth noting.
  10. Every year, the California Legislature passes a bill aimed at abolishing mandatory workplace arbitration. Governor Brown repeatedly vetoed the bills as unconstitutional. Governor Newsom signed AB 51, but as noted above, a federal court deemed it unlawful. That litigation, and the resulting uncertainty, continues.

So what are employers to do?

The lawyers who represent employees have been fighting to do away with workplace arbitration for years. The battle began well before the #MeToo movement. The reasoning has nothing to do with arbitrators being biased (they are certainly better at applying the law to the facts than juries) or plaintiffs not having an effective way to vindicate their rights (they can bring the same claims for the same remedies).

The issue here is money. Because juries are more likely to be swayed by emotion than arbitrators, a jury is more likely to grant a windfall verdict. As a result, jury verdicts tend to be higher than arbitration awards.  A corollary of that is that cases that are heading to a jury trial (with the greater possibility of an emotion-fueled verdict) tend to settle at a higher dollar amount than cases that are headed to arbitration. Sure there are other arguments for and against arbitration. But it would be naive to underestimate the financial motives behind this battle — on both sides.

I’ve defended hundreds of cases for employers over the years in court and in arbitration. From that experience, I believe that – for most employers – the pros outweigh the cons. Since most cases end up settling and cases subject to arbitration tend to settle more cheaply, I believe arbitration agreements still make sense. Of course, every employer is different in terms of goals, risk tolerance, employee relations, and myriad other factors. So you should discuss what makes sense for your company with qualified employment counsel.

UPDATE: I’ll be speaking on this topic at noon on September 24, 2020 at a virtual meeting of the San Mateo County Bar Association Labor and Employment Section. Register here.

AB 51, which restricts workplace arbitration, was scheduled to take effect on January 1, 2020. On December 30, 2019, US District Judge Kimberly Mueller granted a temporary restraining order to prevent the legislation from taking effect.  On January 31, 2020, she issued a preliminary injunction extending the ban, and promised to explain her reasoning in more detail later. On February 6, 2020, she provided that more detailed explanation.

AB 51 made it unlawful (even criminal) for anyone to require an applicant or employee to waive their right to have claims under the Fair Employment and Housing Act or Labor Code decided in court.  While the prohibition did not specifically mention arbitration, it was clear from the language and comments by the bill’s sponsors that that was the intent.

There is, however, a body of federal law (the Federal Arbitration Act) that prohibits states from imposing burdens or restrictions on arbitration agreements that they do not impose on other contracts. Former Governor Jerry Brown vetoed earlier versions of AB 51 because they ran afoul of federal law.  The drafters of AB 51 attempted to draft their way around the problems faced by the earlier bills. For one thing, AB 51 doesn’t even mention arbitration except to (1) exempt arbitrations with registered broker-dealers under the Securities Exchange Act of 1934; and (2) state that the statute does not invalidate existing agreements to arbitrate that are enforceable under the FAA.  Still, their intent to do away with workplace arbitration was clear. While Federal law states that courts must place arbitration agreements on equal footing with other types of contracts, the proposed state law says that asking someone to sign such an agreement is a misdemeanor.

The Supremacy Clause of the US Constitution says that “the Laws of the United States.. shall be the supreme Law of the Land….” This gives the federal government the power to preempt state regulation of certain areas. The employer groups that challenged AB 51 argued that the statute conflicted with the federal government’s declaration that states cannot put burdens on arbitration agreements that aren’t placed on other types of contracts. The state of California argued (unsuccessfully) that the bill does not regulate arbitration agreements, it instead regulates employers efforts to have workers sign them. Judge Mueller was not swayed by this sophistry. Nor was she swayed by the FAA exclusion mentioned above. On this issue, the state argued that, even if the employer and managers faced civil and criminal penalties, the agreement remained enforceable. It doesn’t require much analysis to see that such a provision does not put arbitration agreements on an equal plane with other types of contracts.

If arbitration is outlawed, only outlaws will have arbitration.

So the state remains banned from seeking to enforce AB 51. The litigation will proceed in the US District Court and will undoubtedly be appealed, whatever the outcome. So this is not the last word. As things stand now, however, employers in California remain free to enter into arbitration agreements with their employees.

Here is the latest in a series of blogs about AB 51, the California bill that threatened mandatory arbitration.  Thankfully, the District Court granted the preliminary injunction in full (not just temporarily), and stopped AB 51 from being enforced.  That means that as long as the arbitration agreement is governed by the FAA (Federal Arbitration Act), it can still be mandatory.  The Court promised a more detailed ruling with its analysis, which we will post when available.

Bottomline, California employers can still have mandatory arbitration agreements, or arbitration agreements with an opt-out provision.  AB 51 is not enforceable.  This case may be headed to the 9th Circuit and eventually the US Supreme Court, but until then, mandatory arbitration is lawful (as long as not unconscionable per existing California law).

AB 51, which restricts workplace arbitration, was scheduled to take effect on January 1, 2020. On December 30, 2019, US District Judge Kimberly Mueller granted a temporary restraining order to prevent the legislation from taking effect. She did so in response to a lawsuit by the California Chamber of Commerce and other employer groups arguing that the legislation was unconstitutional. At a hearing on January 10, 2020, Judge Mueller extended the injunction until January 31, 2020 to allow further briefing and argument on the issues.

We’ve been following this issue closely. We wrote about the bill itself here, the pros and cons of workplace arbitration here, the various sides’ economic motives here, the filing of the lawsuit to block the measure here, and the granting of the earlier TRO here.

The state legislature passed similar measures repeatedly, most recently in 2018. But Governor Brown vetoed those prior bills because he deemed them unconstitutional. Now that constitutional battle is playing out in the courts. We’ll continue to provide updates.

We’ve noted before that AB 51 – the California legislature’s latest attempt to attack workplace arbitration – has significant legal flaws. On December 30, 2019, US District Judge Kimberly Mueller granted a temporary restraining order to prevent the legislation from taking effect on January 1, 2020. Judge Mueller ruled that the employer groups bringing the litigation have shown a likelihood of irreparable injury if relief is not granted and that a restraining order is in the public interest. Specifically, they showed that there are serious questions as to whether the law is enforceable and that allowing it to take effect will be unduly disruptive. In addition, the court ruled that the harm to the state of restraining the statute from taking effect until these issues can be more fully addressed is minimal.

A further hearing is scheduled for January 10, 2020.  You can read the order here.

What does this mean for employers? There are obviously pros and cons of mandatory workplace arbitration programs (as we’ve discussed). But if you have such a program, now is not the time to scrap it. 

For an update as of January 13, 2020, read this.

We’ve been blogging about attacks on workplace arbitration for over ten years now. (See, for example, this October 2009 post.) AB 51 represents the latest attempts by plaintiffs’ attorneys to ensure that their clients have continued access to employee-friendly juries, rather than to arbitrators with experience understanding and applying the relevant law. We’ve written about what the law says, the economic motives behind the attacks on arbitration, and about how the law affects employers’ decision whether to implement or continue arbitration programs.

Throughout these discussions, we noted that the bill is of questionable legality. On December 6, 2019, a consortium of employer groups including the US Chamber of Commerce and the California Chamber of Commerce filed suit in the Eastern District of California to block the bill from taking effect. You can read the complaint here. Federal law protects arbitration agreements against attempts by courts and judges to weaken their protections. The suit argues, convincingly I think, that this latest effort contravenes federal law and that the law should be struck down.

We’ll continue to keep you posted as the story develops.

UPDATE: The employer groups bringing the suit have filed for a temporary restraining order.

UPDATE #2: As of December 30, 2019, a federal judge has issued a temporary restraining order blocking the law from taking effect on January 1, 2020.

UPDATE #3: On January 10, 2020, the court further enjoined the measure from taking effect.

We’ve been talking a lot about employment arbitration since the passage of AB 51. We’ve discussed the bill itself, and we’ve reassessed the pros and cons of workplace arbitration since its passage. But what’s all the fuss about? It seems that every legislative session in California, we get a new bill attempting to do away with pre-dispute arbitration agreements. Sometimes similar measures come from the Senate.

The lawyers who represent employees have been fighting to do away with workplace arbitration for years. Some have reported that this is an offshoot of the #MeToo movement. But the battle began well before then. The reasoning has nothing to do with arbitrators being biased (they are certainly better at applying the law to the facts than juries) or plaintiffs not having an effective way to vindicate their rights (they can bring the same claims for the same remedies). Nor are arbitration proceedings secretive, as some have argued. Nothing prevents employees in arbitration from publicizing their claims or the outcome.

The issue here is money. Everyone knows that, because juries are more likely to be swayed by emotion than arbitrators, a jury is more likely to grant a windfall verdict. A corollary of that is that cases that are heading to a jury trial (with the greater possibility of an emotion-fueled verdict) tend to settle at a higher dollar amount than cases that are headed to arbitration. Sure there are other arguments for and against arbitration. But it would be naive to underestimate the financial motives behind this battle — on both sides.

With the passage of AB 51, which we discussed in yesterday’s post, it’s understandable for employers and HR professionals to be asking if mandatory workplace arbitration still makes sense. After all, according to the new bill set to take effect on January 1, 2020, requiring an employee to sign a pre-dispute arbitration agreement or implementing an arbitration program potentially exposes employers and HR professionals to misdemeanor liability. So is it time to abandon mandatory employment arbitration? Not in my opinion, but let’s look at the pros and cons:

The Pros

  1. There are no runaway, emotion-fueled jury verdicts. Arbitration awards can be high, but they tend to be more closely rooted in reality.
  2. The procedures (including discovery) are usually more streamlined than cases in court.
  3. Although plaintiffs can still publicize whatever they want, arbitration hearings are generally more private than court trials.
  4. The cases settle more cheaply. This is a function of item 1 above. Employees and their attorneys can’t base their negotiation position on the fact that, if they just get before a jury, they have a shot at a windfall.
  5. Cases usually resolve more quickly in arbitration than in court.
  6. The attorneys’ fees are usually lower.
  7. If you win, the other side’s opportunity to appeal is very limited.
  8. Since the Supreme Court decided Epic Systems Corp. v. Lewis in 2017, it is now clear that you can require employees to waive the right to pursue class actions.

The Cons

  1. It’s easier for unrepresented parties to bring weak claims.
  2. Forum and arbitrator costs are higher and, in California and many other jurisdictions, the employer bears the vast majority of those costs.
  3. While Epic Systems resolved the issue of class action waivers, the California Supreme Court has said “no” to mandatory arbitration of Private Attorney General Act claims. Eventually, the U.S. Supreme Court may need to address that issue.
  4. As our friends at Wage & Hour – Developments and Highlights have pointed out, plaintiffs’ lawyers who previously filed class actions may now start filing multiple individual arbitrations for wage and hour violations, which could subject employers to burdens and expenses that rival class actions.
  5. As part of the #MeToo movement, there have been concerted attempts by some to argue that arbitration agreements protect sexual harassers. However, any remedy that an employee can recover in court against a harasser is available to the same extent in arbitration.
  6. If you lose at arbitration, your opportunity to appeal is very limited.
  7. It can be harder to get cases out on dismissal or summary judgment.
  8. While it hasn’t been my experience, some say that arbitrators tend to “split the baby.”
  9. AB 51, set to take effect on January 1, 2020, prohibits the agreements and makes attempts to enforce them unlawful — even criminal (a misdemeanor).

So what are employers to do?

In AT&T Mobility LLC v. Concepcion and other cases, the U.S. Supreme Court has clearly stated that the Federal Arbitration Act preempts state laws that “stand[] as an obstacle to the accomplishment and execution of the full purpose and objectives of [the FAA].” That’s why Governor Newsom’s predecessor, Jerry Brown, kept vetoing bills like AB 51. That’s why AB 51 doesn’t ever use the word “arbitration” other than noting situations in which arbitration is allowed. It attempts to dance around that by talking about waiver of certain rights, forums, or procedures. Still, the intent is apparent and there will undoubtedly be legal challenges to this bill, too. So now is not the time to panic. In fact, if you’re an employer who doesn’t have arbitration agreements with your workers, now may even be the time to implement one, since the bills says that it will not invalidate existing written arbitration agreements that are otherwise enforceable under the FAA.

I’ve defended hundreds of cases for employers over the years in court and in arbitration. From that experience, I believe that – for most employers – the pros outweigh the cons. Since most cases end up settling and cases subject to arbitration tend to settle more cheaply, I believe arbitration agreements still make sense. Of course, every employer is different in terms of goals, risk tolerance, employee relations, and myriad other factors. So you should discuss what makes sense for your company with qualified employment counsel.